Hong Kong is taking major steps again in digital asset regulation. The Financial Secretary’s Office and the Securities and Futures Commission announced today that they will launch a public consultation on the licensing regime for virtual asset service providers. The consultation period will last for two months and will end on August 29. The scope covered this time is also fairly broad, including two key areas: trading services and custody services.

When it comes to details, Hong Kong’s regulatory approach for this area is still very clear. They are advancing the licensing regime for virtual asset service providers in two parts. One is the licensing regime for digital asset trading service providers, and the other is the licensing regime for custody service providers. Under this framework, the SFC is responsible for formulating regulatory requirements and serving as the standard-setter, while the HKMA acts as the front-line regulator supervising registered banks and stored value payment instruments.

Looking more closely, the scope covered by trading services is actually not small. From simple digital asset exchanges to complex brokerage activities and block trades, all are included. Anyone conducting such business in Hong Kong must obtain a license or registration from the SFC. Licensed entities need to meet appropriate-fit-and-proper criteria and also comply with a range of regulatory requirements, including financial resources, risk management, and protection of customer assets.

Custody services are no exception. If a virtual asset service provider wants to hold digital assets or related tools on behalf of customers, it likewise needs to obtain a license or registration from the SFC. The regulatory requirements are basically benchmarked against those for trading services, including customer asset protection, financial resources, and risk management.

What’s interesting is that Hong Kong has not set any transition arrangements this time. Once the relevant legal provisions come into effect, the licensing regime will be fully implemented, with no grace period for a “deemed as licensed” status. This shows that Hong Kong’s push for the licensing regime for virtual asset service providers is serious.

Financial Secretary Zheng Zhengyu said that this regime can provide Hong Kong with a foundation centered on protecting investors and consumers, allowing the digital asset ecosystem to develop in an environment where risks are under control. SFC Chief Executive Julia Leung also noted that the regulatory system introduced this time can help build a complete digital asset ecosystem, providing a safe, reliable, and vibrant environment for both institutions and retail investors.

During the consultation period, the Financial Secretary’s Office and the SFC will also meet with the industry to collect views from all sides. For Hong Kong’s digital asset industry, this public consultation is still an important milestone. It covers the regulatory framework for core areas such as trading and custody and, in essence, addresses the main aspects of the virtual asset service provider licensing regime.