HONG KONG SAR, CHINA Trends and Developments Contributed by: Sam Wu and Beverly Fu, YYC Legal LLP
agers already engage with VAs, often under SFO Type 4 and Type 9 licences and existing SFC–HKMA joint circulars, and wish to create a coherent AMLO-based framework following the “same activity, same risks, same regulations” principle. Under the advisory proposal, any person who carries on a business of providing “advising on virtual assets” in Hong Kong will need to be licensed or, in the case of banks, registered with the SFC. The draft definition covers both personal recommendations on whether, when or on what terms VAs should be acquired or disposed of, and the issuance of analyses or reports intended to facilitate investment decisions in VAs, mir - roring the scope of SFO Type 4 advisory activities. Proposed exemptions for VA advisory services reflect the existing SFO model, including wholly-owned group companies advice, advice wholly incidental to licensed VA dealing or solely for the purposes of licensed VA fund management, and advice by solici - tors, counsels and certified public accountants where incidental to their professional practice. Advisory via generally available publications or broadcasts would also be exempt, consistent with familiar securities advisory carve-outs. For VA management service providers, the proposed regime will capture anyone managing a portfolio of VAs for another person on a discretionary basis, again with exemptions for wholly-owned group companies’ mandates, acts incidental to licensed VA dealing, and certain professional trustees and solicitors, counsels and certified public accountants. Notably, the authori - ties propose not to set a de minimis threshold: any portfolio containing VAs, regardless of its percentage exposure, can trigger the requirement to be licensed or registered for VA management, which is intended to prevent regulatory arbitrage and reflect the inherent risk profile of VA exposure. Both VA advisory and VA management licensees would be subject to AML and record-keeping obliga - tions under Schedule 2 to the AMLO, in line with oth - er AMLO-regulated institutions. Financial resources requirements are proposed to align with SFO Types 4 and 9. For each regime, there is a minimum paid-up share capital of HKD5 million and minimum liquid cap -
ital of HKD100,000 where no client assets are held, or HKD3 million where client assets are held. On custody, the consultation paper explicitly raises whether VA management service providers should be required to use only SFC-regulated VA custodians for private funds they manage or if they are permitted to appoint any custodian subject to due diligence, representing one of the key open questions for 2026. The paper also contemplates a limited self-custody exemption for private equity and venture capital fund managers investing in new tokens that are not yet supported by SFC-regulated custodians, echoing the bespoke exemption under the custodian regime. Practical implications for market participants For existing VA custodians and exchanges, 2026 will be the year to transition from bespoke SFC conditions to a statutory AMLO licence, including re-examining key management structures, individual licensing cov - erage and capital planning. Groups that currently rely heavily on overseas affiliates for technology and oper - ations will need to ensure that a Hong Kong-licensed entity retains unilateral ability to transfer client assets and that relevant staff of group entities are properly accredited and supervised. Broker dealers, over-the-counter desks and payment providers with VA exposure should map their activities against the new VA dealing definition and likely advi - sory and management scopes. A careful assessment is needed of whether VA flows are purely proprietary or within wholly-owned group companies, or whether there is any inducement or arrangement of third-party client transactions that would trigger a licence, par - ticularly where VA conversion is embedded in cross- border payment solutions. For asset managers, private banks and family offices, the proposed advisory and management regimes will require a more granular look at how VA research, rec - ommendations and portfolio management are deliv - ered. Firms that currently treat modest VA allocations as de minimis will need to consider whether to obtain dedicated VA advisory or management licences, restructure products, or confine VA exposure to SFC- approved channels such as SFC-authorised VA funds and exchange-traded products.
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