- Hong Kong will introduce licensing rules for crypto dealers and custodians to strengthen market oversight.
- Crypto dealers must follow strict rules to protect client assets and meet capital and operational standards.
- Advisory and management service providers will also require licenses under the new regulatory framework.
Hong Kong will introduce licensing of virtual asset dealers and custodians. Consultations on the proposed framework were finalized by the Financial Services and the Treasury Bureau (FSTB) and the Securities and Futures Commission (SFC). Companies that offer crypto trading or storage will be required to be licensed, when the new regulations become effective. The progress increases the regulation over a wider portion of the digital asset market.
The licensing program fills regulatory loopholes as cryptocurrency trading goes outside the conventional exchanges. The governments are seeking to have the over-the-counter trading, brokerage and third party custody under supervision. The framework is consistent with the current securities regulations in Hong Kong, which require dealers to adhere to strong standards of operation. They also will allow insurers to hold crypto with full capital backing.
Dealer Licensing Requirements
Under the new framework, dealers will face licensing obligations for a wide range of activities. This includes virtual asset-to-fiat and virtual asset-to-virtual asset conversions. Brokerage, block trading, and advisory services will also fall under regulation. The framework applies to both online and offline operations.
The dealers are obliged to separate client assets and use licensed custodians. There will be requirements to have strong internal controls, cybersecurity, and business continuity plans. The applicants must meet fit and proper standards and with a minimum capital of HK $5 million. The regulations are designed to secure investors and increase market stability.
Custodian Licensing Regime
Custodians handling client virtual assets will require a dedicated license. Any entity holding or controlling private keys in Hong Kong falls under the new regime. The rules enforce strict segregation of client assets and robust operational controls. Paid-up capital requirements for custodians are set at HK$10 million. The measures focus on safeguarding assets and managing operational risks. Hong Kong also tested tokenized incentives.
The licensing framework ensures custodians meet internal and external compliance standards. It introduces a consistent supervisory approach across all firms involved in digital asset safekeeping. The SFC will supervise compliance, perform inspections and impose penalties if necessary.
Advisory and Management Services
Alongside dealers and custodians, licensing will extend to advisory and management service providers. The framework covers crypto advisers and asset managers, bringing them in line with traditional finance supervision. Some of the proposed rules include licensing scope, regulatory powers, sanctions, and appeal processes.
The consultation process solicits input on compliance with the Anti-Money Laundry (AML) and Counter-Terrorist Financing Ordinance in Hong Kong. It guarantees the regulation of advisory and management activities in digital assets. Authorities encourage early engagement to help firms prepare for compliance.
