HONG KONG SAR, CHINA Law and Practice Contributed by: Pang Lee, Joyce Wang, Mark Liang and Francis Li, Cooley
and may only be offered to professional investors fol- lowing a rigorous assessment of the client’s derivative knowledge. Firms can theoretically rely on the exemption of “reverse solicitation”, where a Hong Kong resident independently approaches an unlicensed overseas firm for services entirely of their own volition, without any prior marketing, inducement or advertising by that firm. However, this exemption is construed incred- ibly narrowly by the SFC. Overseas platforms cannot systematically rely on it to build a local client base. Regulators actively investigate platforms attempting to disguise targeted marketing algorithms as reverse solicitation, and firms must maintain meticulous foren- sic records proving the client initiated the relationship autonomously. 4.2 White Labelling External firms and traditional financial institutions can utilise white-label solutions to sell into Hong Kong by leveraging the complex regulatory licences and trad- ing infrastructure of already-existing, SFC-licensed entities. Institutional liquidity providers and licensed VATPs actively offer API-driven brokerage and cus- tody modules. This architecture enables domestic banks and intermediaries to offer crypto services to their retail clients under their own branding, while the licensed VATP partner executes the transactions and manages the technical custody and regulatory com- pliance on the back end. Furthermore, the SFC significantly enhanced these capabilities through two major developments. The “Circular on shared liquidity by VA trading platforms”, issued on 3 November 2025, permitted licensed VATP operators to integrate their order books with affiliated overseas VATPs through a shared liquidity pool. Build- ing on this, the “Circular on licensed corporations pro- viding virtual asset dealing services to offer financing for virtual asset dealing and access to shared order book, and to safeguard client virtual assets relating to withdrawals”, issued on 11 February 2026, permitted licensed VA brokers operating omnibus accounts to tap into these shared order books. This allows local entities to leverage the deeper shared liquidity pools of global parent companies, provided
the offshore affiliate is domiciled in a FATF-compliant jurisdiction and the arrangement incorporates robust conflict-of-interest controls to ensure local client orders receive execution priority.
5. Decentralised Finance 5.1 Ability to Use DeFi DeFi
DeFi is conceptually permitted in Hong Kong, as the regulatory framework is fundamentally technology- neutral. However, it is not exempt from rigorous oversight. The SFC applies the principle of “same business, same risks, same rules”. If a DeFi activity structurally mirrors a traditional financial service regu- lated under the SFO, it falls entirely within the SFC’s regulatory purview. Centralised Finance (CeFi) CeFi firms and licensed intermediaries are permitted to utilise DeFi protocols in connection with providing products within the jurisdiction, provided they sat- isfy stringent risk management obligations. Following the “Circular on staking services provided by virtual asset trading platforms” and the “Circular on SFC- authorised funds with exposure to virtual assets” (both issued on 7 April 2025), licensed VATPs and author- ised VA funds must obtain the SFC’s prior written approval before engaging in DeFi interactions, such as staking services or yield-generation protocols. They must address profound concerns regarding smart contract vulnerabilities, liquidity risks and the effective safeguarding of staked client assets. Consequently, authorised funds are generally restricted to staking their VA holdings only through licensed VATPs and authorised institutions, subject to strict concentration caps. 5.2 DeFi Structures The corporate structures commonly used to oper- ate DeFi globally, such as decentralised autonomous organisations (DAOs), face significant legal friction in Hong Kong due to their lack of recognised legal per- sonality. Operating a pure DAO without a legal wrap- per severely complicates contract enforcement, prop- erty ownership and the allocation of liability.
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