Hong Kong’s Securities Body Pushes Back on Stricter Crypto Licensing Rules

Highlights:

• Hong Kong’s securities group rejects the end of the 10% crypto investment exemption.
• The proposed crypto licensing rules raise entry barriers for traditional managers.
• New rules could disrupt Web3-focused VC funds due to strict custody conditions.

The Hong Kong Securities and Futures Professionals Association (HKSFPA) has expressed concerns over the new crypto licensing rules. The group submitted objections to the proposed changes that impact Type 9 licensed asset managers. These managers are now able to dedicate less than 10% of the value of a fund to crypto assets without a special virtual asset license.

This threshold would be entirely eliminated under the proposed regime. The inclusion of any crypto allocation, even as low as 1%, would require full licensing. The association claimed that this change introduces an “all or nothing” system that might deter portfolio diversification. It further stated that the compliance expenses would rise even where the crypto exposure is limited.

The proposed changes came as the Financial Services and the Treasury Bureau concluded its earlier consultation. In December, the Securities and Futures Commission launched a new consultation on refining regulatory rules on digital assets.

🇭🇰 Hong Kong’s New Crypto Licensing Sparks Debate
⚖️ Plan to remove the 10% de minimis rule
→ Even 1% BTC exposure may need full VA license
💸 Industry warns:
• High compliance costs
• Traditional funds pushed away
• Web3 & VC funds risk being stuck
🏦 Custody rules may block… pic.twitter.com/2pTC2a0deR

— TheBlockMind (@CryptoBlockMind) January 20, 2026

Custody Rules May Hinder Web3 Funds

Custody proposals, alongside crypto licensing rules, were also criticized by the HKSFPA. The new regulations would compel asset managers to store digital assets only with custodians that are licensed by the SFC. This requirement, according to the group, might be impractical for a private equity or venture capital fund that invests in early-stage tokens.

The association pointed out that such tokens are not usually supported by local custodians. Consequently, the new regulations might prevent Hong Kong-based funds from engaging in Web3 and early-stage crypto projects. It argued that professional investors should be given a choice to utilize qualified foreign custodians or retain self-custody.

Regardless of these objections, the group endorsed the broader initiative of regulating crypto activity more systematically. It noted the need to have flexible rules that allow innovation while maintaining risk. However, it cautioned that too much regulation could drive crypto-related businesses out of Hong Kong.

Changes Could Expand Regulatory Scope

According to law firm JunHe LLP, the proposals would mark a major expansion in regulation scope. Today, many managers operate outside the Type 9 framework, particularly those dealing with crypto assets only. Such managers might not consider themselves traditional securities portfolio managers. However, they would also require a virtual asset license under the new rules.

The HKSFPA claimed that this would raise the costs of compliance and hamper experimentation with digital assets. The elimination of the de minimis would raise the fixed cost of crypto exposure even in the case of testing small allocations. This could consequently slow down institutional involvement as Hong Kong is attempting to expand its digital asset market.

The industry group further called on regulators to reinstate a clear limit on small crypto allocations. It said a notification system would be more fitting with traditional managers, who want limited exposure.

According to officials, the new crypto licensing rules are meant to align crypto activity with traditional finance standards. SFC has already introduced frameworks for crypto trading platforms and stablecoin issuers. The consultation now specializes in advisory and asset management services. The consultation is open until February 6, 2026, and final regulations are anticipated later in this year.

🚨 Hong Kong’s Stablecoin Law Takes Effect TODAY

Hong Kong’s stablecoin bill is now LAW.

It sets the stage for a licensed, tightly regulated stablecoin market.

Here’s what you need to know 🧵👇 pic.twitter.com/uqZyaxxTJR

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