Hong Kong FSTB and SFC Consult on Proposed Regimes to Regulate Virtual Asset Dealers and Custodians
Client Alert | July 4, 2025
The consultation processes for both Consultation Papers will close on 29 August 2025. Interested parties are encouraged to respond to the proposals before the close of the consultation period.
On June 27, 2025, the Hong Kong Government’s Financial Services and the Treasury Bureau (FSTB) and the Securities and Futures Commission (SFC) jointly published two consultation papers to consult on legislative proposals to regulate virtual asset (VA) dealing and VA custody services respectively (VA Dealing Consultation Paper and VA Custody Consultation Paper, collectively the Consultation Papers).[1] Given that Hong Kong’s crypto regulatory regime is currently limited to the regulation of virtual asset trading platforms (VATPs)[2] and the issue and offering of stablecoins under the soon to be enacted Stablecoins Ordinance,[3] the proposed regulation of VA dealing and custody represent a significant expansion in the regulatory perimeter in relation to VA in Hong Kong.
This update provides an overview of the key proposals outlined in the Consultation Papers.
I. Background to the Consultation Papers
Earlier this year, the SFC published its SFC’s “ASPIRe” roadmap for VA which set out the SFC’s key initiatives for developing Hong Kong as a global cryptocurrency hub (Roadmap).[4] The first of the initiatives set out in the Roadmap was the regulation of VA dealing and VA custody – signalling the SFC’s understanding of the importance of OTC trading and custody in the broader crypto ecosystem.
By way of background, the VA Dealing Consultation Paper represents the Hong Kong Government’s second proposal with regards to the regulation of OTC VA trading, following an earlier consultation in February 2024 (the First Consultation).[5] Notably, the First Consultation proposed that:
- persons who conduct a business in providing VA spot trading services in Hong Kong (including physical outlets and/or other platforms) would be licensed by the Commissioner of Customs and Excise (CCE), but that VA spot trading would be limited to VA-to-fiat or fiat-to-VA trading. Instead, the First Consultation proposed that firms seeking to provide VA-to-VA trading services should consider applying for a VATP licence;
- where a license applicant is also involved in the remittance of fiat money, the license applicant would need to apply for a money service operator license in addition to a VA OTC license; and
- there would be a six-month transitional period to allow pre-existing VA OTC service providers to continue their operations, provided that they submit a licence application to the licensing authority within the first three months of the transitional period.
As noted in the VA Dealing Consultation Paper, a significant volume of industry feedback was received in relation to the First Consultation. In particular:
- The SFC and FSTB noted that the original proposal under the First Consultation was intended to address VA dealing activities in a physical setting (e.g., ATM networks and coin shops) servicing individual investors, with these businesses having limited online presence. However, the industry feedback received from the First Consultation revealed that the nature and scope of VA OTC activities are more diverse and complex in practice than originally contemplated, and includes not only physical shops but also digital only platforms, broker-dealer-type businesses, payment service providers and VA card networks, as well as firms engaged in OTC trading in the course of asset management-related activities, block trading and conversions for trade settlement purposes.
- While the First Consultation envisaged that the customers of VA dealing firms would be primarily individual investors, the feedback received reflected a more complex reality, with a number of firms primarily servicing institutional investors, small-and-medium enterprises and market makers, whose needs differ from those of individual investors.
- The First Consultation did not address custody/escrow services involving clients’ VA. However, the VA Dealing Consultation Paper has noted that custody of client assets appears to be a prerequisite for more complex activities, particularly in the context of VA broker-dealer operations – leading to the parallel consultation on VA custodian services.
As a result of the feedback received during the First Consultation, there are some substantial differences between the approach taken in the First Consultation to the regulation of VA OTC dealing and that outlined in the VA Dealing Consultation Paper. Most significantly (and as explained below), the scope of the proposed regime now relies on a definition of “dealing in VAs” which is closely modelled on the definition of “dealing in securities” under the Securities and Futures Ordinance (SFO). Given that the definition of “dealing in securities” is a well-established concept within the Hong Kong regulatory regime, we believe that the shift to using a similar definition in the VA space is a welcome development and is in keeping with the SFC’s desire to apply the principle of “same activity, same risks, same regulation” to its regulation of VA. Additionally, given the industry feedback regarding the nature of VA dealing in Hong Kong, we welcome the shift of responsibility from the CCE to the SFC (as well as the HKMA as frontline regulator of VA dealing by banks and stored value facilities (SVFs)). Further, given the SFC and HKMA’s respective roles in regulating VATPs and stablecoins, this proposed reallocation of responsibility to the SFC and HKMA should help avoid regulatory fragmentation in this space through the involvement of another regulator (i.e. the CCE) in this space.
II. Summary of the FSTB and SFC’s Proposals under the Consultation Papers
We have set out a detailed summary of the key proposals under the Consultation Papers below:
VA Dealing Services |
VA Custodian Services |
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| Proposed scope of regulation | A person will require a licence (VA Dealing Licence) if they, by way of business, make or offer to make an agreement with another person, or induce or attempt to induce another person to enter into or offer to enter into an agreement:
(a) for or with a view to acquiring, disposing of, subscribing for or underwriting VAs; or (b) the purpose or pretended purpose of which is to secure a profit to any of the parties from the yield of VAs or by reference to fluctuations in the value of VAs (collectively, VA Dealing Services). The proposed scope is almost identical to the definition of “dealing in securities” under the Securities and Futures Ordinance (except substituting VA for securities) and thus is very broad. The VA Dealing Consultation Paper explained that this definition is intended to cover:
As noted above, this proposed definition is a significant departure from the First Consultation (which only covered fiat-to-VA and vice versa). Persons who do not hold a VA Dealing License will also be prohibited from “actively marketing” the provision of (or holding out as providing in Hong Kong) VA Dealing Services to the public of Hong Kong – regardless of whether that active marketing takes place in or outside of Hong Kong. |
A person will require a licence (VA Custodian Licence) if they, by way of business:
(a) safekeep VAs on behalf of clients; or (b) safekeep, on behalf of clients, instruments enabling the transfer of VAs of clients (e.g. private keys and instruments such as smart cards / authentication credentials used to access private keys) (collectively, VA Custodian Services). Persons who do not hold a VA Custodian License will also be prohibited from “actively marketing” the provision of (or holding out as providing in Hong Kong) VA Custodian Services to the public of Hong Kong – regardless of whether that active marketing takes place in or outside of Hong Kong. |
| Responsible regulator(s) | Firms providing VA Dealing or VA Custodian Services will generally be licensed and supervised by the SFC. This is with the exception of VA Dealing or VA Custodian Services offered by banks and SVFs regulated by the HKMA. Banks and SVFs wishing to offer VA Dealing or Custodian Services will need to be registered with the SFC but the HKMA will be their frontline regulator (similar to the existing approach to the regulation of the securities business of banks). | |
| Persons who will require a licence under the current proposals | The VA Dealing Consultation Paper indicated that following persons will require a VA Dealing Licence:
(a) SFC-licensed virtual asset trading platforms (VATPs) (irrespective of whether they engage in off-platform transactions); (b) SFC-licensed corporations that already provide VA Dealing Services; and (c) currently unregulated (i.e. non-SFC licensed) persons that provide VA Dealing Services. This is likely to include VA brokers, VA market makers and liquidity providers, VA asset managers, etc. The VA Dealing Consultation Paper flagged that there will be an expedited approval process for persons in categories (a) and (b) above as they are already licensed by the SFC to provide VA Dealing Services. |
The VA Custody Consultation Paper set out a non-exhaustive list of persons that will be required to obtain a VA Custodian Licence based on the current proposed scope:
(a) associated entities of SFC-licensed VATPs (which are currently required to provide VA custodian services under the current VATP licensing regime); (b) banks, subsidiaries of locally incorporated banks and SVFs if they provide VA Custodian Services themselves by way of safekeeping the private keys (or similar instruments) which enable transfer of client VAs – even if such safekeeping is provided in the course of providing VA dealing services or acting as depositaries of SFC-authorised funds with VA in the funds’ portfolios; and (c) SFC-licensed fund managers, if they provide self-custody to the funds under their management which invest in VAs by way of safekeeping the private keys (or similar instruments) which enable the transfer of fund VAs. Based on the current proposed scope, the VA Custody Consultation Paper noted that technology service providers that support the provision of a VA Custodian Service but who do not themselves safekeep the private keys (or similar instruments) for transfer of VAs will not require a licence. However, the FSTB and SFC have invited feedback from the industry on the various business models, involvement of third parties and technology infrastructure setups currently utilized in this space in order to assist in refining the above definition and identify firms which should be exempt from this licensing regime – therefore this may be subject to change. There will also likely be incidental exemptions for SFC regulated entities whose safekeeping of VAs on behalf of its clients is wholly incidental to the principal business for which such entities are licensed. |
| Proposed eligibility requirements for a licence | An applicant for a VA Dealing Licence will need to:
(a) either be (i) a company incorporated in Hong Kong with a permanent place of business in Hong Kong, or (ii) a company incorporated outside Hong Kong but registered in Hong Kong; (b) be fit and proper. The fit and proper requirement will extend to the applicant’s substantial shareholders and to individuals carrying out VA dealing functions for the applicant; (c) appoint at least two responsible officers (ROs) approved by the SFC who will be responsible for ensuring compliance with the AML/CFT and other SFC regulatory requirements; (d) meet capital requirements, including minimum paid-up share capital of HK$5 million and minimum liquid capital of up to HK$3 million (depending on business model) and excess liquid capital equivalent to at least 12 months of actual operating expenses; and (e) implement systems and controls that are adequate to comply with all AML/CFT and other SFC regulatory requirements (see below). |
An applicant for a VA Custodian Licence will need to:
(a) either be (i) a company incorporated in Hong Kong with a permanent place of business in Hong Kong, or (ii) a company incorporated outside Hong Kong but registered in Hong Kong; (b) be fit and proper. The fit and proper requirement will extend to the applicant’s substantial shareholders and to individuals carrying out VA custody functions for the applicant; (c) appoint at least two ROs approved by the SFC who will be responsible for ensuring compliance with AML/CFT and other SFC regulatory requirements; (d) meet capital requirements, including minimum paid-up share capital of HK$10 million, and minimum liquid capital of up to HK$3 million (depending on business model) as well as any other additional financial resources requirements ultimately imposed by the SFC; (e) ensure that staff members who perform more than a clerical role in a business function directly relating to the VA Custodian Licensee’s discharge of its regulatory obligations under the new regime are licensed by the SFC or registered as relevant individuals with the HKMA; and (f) implement systems and controls that are adequate to comply with all AML/CFT and other SFC regulatory requirements (see below). |
| Proposed restrictions on types of VA offered | The SFC and FSTB have flagged that VA Dealing Licensees will be expected to align their approach to token offerings with those of SFC-licensed VATPs. As such, a VA Dealing Licensee will be expected to set up a token admission and review committee and perform reasonable due diligence on all VAs prior to offering them.
The desire to align token offering requirements with SFC-licensed VATPs will mean that VA Dealing Licensees are likely to be restricted to offering only “high liquidity” tokens (e.g. BTC and ETH) to retail investors, as well as stablecoins issued by issuers licensed by the HKMA. However, professional investors should be able to be offered a broader range of VA, subject to reasonable due diligence being completed on the tokens being offered. |
There will be no restrictions on the types of VAs that a VA Custodian Licensee can provide custodian services, provided that the licensee has performed robust due diligence on the token to ensure that money-laundering and terrorist-financing (ML/TF) risks are adequately managed. Additionally, a VA Custodian Licensee which safekeeps the private keys (or similar instruments) must have custody infrastructure that can support taking the token into custody. |
| Proposed regulatory requirements | The SFC intends to adopt the “same activity, same risks, same regulation” principle to VA Dealing Licensees. Given this, the relevant regulatory requirements that are currently applicable to SFC-licensed VATPs and SFC-licensed corporations that offer VA Dealing Services are likely to also apply to VA Dealing Licensees. This includes requirements across a broad range of areas such as AML/CFT, risk management, financial reporting, conduct of business, record keeping, protection of client assets and investor protection safeguards. The SFC has flagged that it will conduct a separate consultation on the detailed regulatory requirements.
Notably, the SFC flagged that it is considering allowing VA Dealing Licensees to acquire or dispose of VAs for clients via non-SFC-licensed VATPs that are subject to regulation in other jurisdictions (and provided that there are sufficient investor protection safeguards in place). This is in contrast with the current restrictions on SFC-licensed corporations that provide VA Dealing Services which only permits them to trade VAs for their clients through an omnibus account maintained with SFC-licensed VATPs. |
The VA Custody Consultation Paper highlighted that the regulatory requirements applicable to a VA custodian service provider will depend on the scope of the licensing regime, as well as whether firms safekeep private keys themselves or instead appoint other VA Custodian Licensees or other licensed firms in other jurisdictions to do so.
For VA Custodian Licensees that safekeep private keys themselves, the SFC has indicated that the applicable regulatory requirements will likely be comparable to the custody requirements currently imposed on SFC-licensed VATPs. This will include requirements across a broad range of areas such as AML/CFT, conduct of business, risk management, record keeping and financial reporting. Firms will also be required to engage an external assessor to perform an external assessment on its policies, procedures, systems and controls as part of the licensing process. The SFC will conduct a separate consultation on the detailed regulatory requirements. |
| No transitional period proposed | The FSTB and SFC have noted in the Consultation Papers that no transitional period is proposed for the VA Dealing or VA Custodian Services regimes. This means that the regimes would take effect from the commencement date of the relevant statutory provisions and unlicensed firms would need to cease business as of that date. This is in contrast to the VATP licensing regime which had a transitional period for pre-existing unregulated VATP operators to apply for an SFC licence.
Given this, the Consultation Papers suggest that firms already engaged in providing VA Dealing Services or VA Custodian Services to reach out to the SFC and/or HKMA ASAP to initiate pre-application processes and to provide feedback on the commencement date of the licensing regimes. |
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III. Key Takeaways and Conclusion
While the Consultation Papers represent a significant and welcome step forward in the regulation of the crypto ecosystem in Hong Kong, there are a number of aspects of the Consultation Papers that we anticipate will be the subject of considerable industry feedback, including:
- The scope of the proposed definitions and the availability of exemptions from the requirement to hold a VA Dealing Licence or a VA Custodian Licence: The SFC and FSTB have specifically sought feedback on the scope of the proposed definitions of VA Dealing Services and VA Custodian Services, as well as whether there are any potential exemptions that would be appropriate. For VA dealing, we anticipate industry feedback to focus on whether any (or all) of the exemptions from the definition of “dealing in securities” should be incorporated into the definition of “dealing in VAs”. For VA custody, the SFC and FSTB have identified a number of specific questions on which they are seeking industry feedback, including whether (i) entities that do not safekeep private keys but instead arrange a third party to custody client VAs, and (ii) group entities involved in safekeeping private keys and/or signing a VA transaction should be required to be licensed.
- The proposal to allow VA Dealing Licensees to acquire or dispose of VAs for clients via non-SFC-licensed VATPs: As noted above, the SFC and FSTB are specifically consulting on whether VA Dealing Licensees should be allowed to transact with non-SFC-licensed VATPs that are subject to regulation in other jurisdictions, provided that there are sufficient investor protection safeguards in place. We anticipate that there will be significant industry feedback in favour of providing flexibility for VA Dealing Licensees, particularly given that this proposal is consistent with the SFC’s stated focus in the Roadmap on integrating “Hong Kong with global liquidity”.
- The proposed lack of transitional period: As noted above, the SFC and FSTB have flagged that their present intention is for there to be no transitional period for either the VA Dealing or VA Custodian regimes. This is likely intended to avoid a situation in which applicants are deemed to be licensed while the SFC reviews their licence applications, as this type of deeming arrangement can lead to firms whose licence applications are ultimately rejected being allowed to operate under a deeming arrangement for an extended period of time. However, we anticipate that this proposal will be the subject of significant industry feedback as it does expose firms to the risk of being forced to cease operating if their licence applications are still being reviewed by the SFC at the time that the regimes come into effect.
The consultation processes for both Consultation Papers will close on 29 August 2025. Interested parties are encouraged to respond to the proposals before the close of the consultation period.
[1] “Public Consultation on Legislative Proposal to Regulate Dealing in Virtual Assets”, jointly published by the FSTB and SFC on June 27, 2025, available at: https://apps.sfc.hk/edistributionWeb/api/consultation/openFile?lang=EN&refNo=25CP6; and “Public Consultation on Legislative Proposal to Regulate Virtual Assets Custodian Services”, jointly published by the FSTB and SFC on June 27, 2025, available at: https://apps.sfc.hk/edistributionWeb/api/consultation/openFile?lang=EN&refNo=25CP7
[2] “New Hong Kong Regulatory Requirements and Licensing Regime for Virtual Asset Trading Platforms Finalised as Legislation Takes Effect”, published by Gibson, Dunn & Crutcher on June 7, 2023, available at: https://www.gibsondunn.com/new-hong-kong-regulatory-requirements-and-licensing-regime-for-virtual-asset-trading-platforms-finalised-as-legislation-takes-effect/
[3] “Hong Kong Gets Ready for Stablecoin Regulation: HKMA Prepares for Enactment of the Regime”, published by Gibson, Dunn & Crutcher on June 4, 2025, available at: https://www.gibsondunn.com/hong-kong-gets-ready-for-stablecoin-regulation-hkma-prepares-for-enactment-of-the-regime/
[4] “A-S-P-I-Re for a brighter future SFC’s regulatory roadmap for Hong Kong’s virtual asset market”, published by the Securities and Futures Commission on February 19, 2025, available here.
[5] “Public Consultation on Legislative Proposals to Regulate Over-the-Counter Trading of Virtual Assets”, published by FSTB on February 8, 2024, available at: https://www.fstb.gov.hk/fsb/en/publication/consult/doc/VAOTC_consultation_paper_en.pdf
Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. If you wish to discuss any of the matters set out above, please contact any member of Gibson Dunn’s Financial Regulatory team, including the following members in Hong Kong:
William R. Hallatt (+852 2214 3836, whallatt@gibsondunn.com)
Emily Rumble (+852 2214 3839, erumble@gibsondunn.com)
Becky Chung (+852 2214 3837, bchung@gibsondunn.com)
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Jane Lu (+852 2214 3735, jlu@gibsondunn.com)
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