HKSFPA Challenges Hong Kong's Proposed Digital Asset Management Regulations

Hong Kong’s financial industry is pushing back against new regulatory proposals that could reshape how institutions manage digital assets. The Securities and Futures Practitioners Association (HKSFPA) has submitted formal feedback opposing key elements of the digital asset management framework being advanced by authorities, citing concerns about excessive compliance burdens and practical implementation issues.

The 10% de Minimis Threshold Under Fire

At the heart of the dispute lies the proposed elimination of the existing de minimis arrangement. Currently, institutions holding a Type 9 asset management license can allocate up to 10% of fund assets to crypto assets without requiring an additional virtual asset management license—they only need to notify regulators. The new digital asset management rules would scrap this flexibility entirely, demanding a full virtual asset management license even for minimal allocations to Bitcoin or other digital assets.

The HKSFPA argues this binary regulatory model is disproportionate and economically unreasonable. By requiring full licensing for any exposure to digital asset management, the framework could impose substantial compliance and operational costs on traditional asset managers considering modest cryptocurrency positions. Industry participants warn this approach may discourage established fund managers from entering the digital asset space altogether, potentially stunting Hong Kong’s competitiveness in this sector.

Custody Standards Create Barriers for Digital Asset Management

The association has also raised alarms about proposed custody requirements for digital asset management operations. Under the new rules, virtual asset managers would be restricted to using only SFC-licensed custodians for holding digital assets. While this safeguards against counterparty risk, the HKSFPA contends the requirement is unrealistic for certain investment activities, particularly early-stage token investments and Web3 venture capital initiatives.

The industry body advocates for flexibility in the digital asset management custody framework, specifically supporting self-custody options and the ability to use qualified overseas custodians when serving professional investors. Such flexibility, they argue, would enable Hong Kong institutions to participate in emerging asset classes without sacrificing security standards.

Where Hong Kong’s Digital Asset Management Framework Stands

Hong Kong authorities continue refining the digital asset management regulatory landscape. The SFC previously released a consultation summary on the framework and is currently conducting fresh consultations on licensing requirements for crypto asset trading, advisory, and management services. Industry feedback like that from the HKSFPA will likely shape the final regulatory approach to digital asset management going forward.