Original Authors: Huang Wenjing, Yan Xuesong

Introduction

As an international financial center, Hong Kong reaffirms its commitment to becoming a global innovation hub in the digital asset sector through the "Digital Asset Development Policy Declaration 2.0." The "VA Upgrade" for cryptocurrency trading platforms and the Hong Kong Securities and Futures Commission's (SFC) traditional license represents the first step towards a comprehensive regulatory framework for cryptocurrency assets.

As we move into 2026, with the progress of the consultation process regarding the important "regulatory vacuum areas" of Virtual Asset (VA) Dealing and VA Custody, the Financial Services and the Treasury Bureau ("FSTB") and the SFC have clarified the legislative direction. The aim is to introduce two specific licensing systems through amendments to the Anti-Money Laundering and Terrorist Financing Ordinance (AMLO). This formalizes the existing SFC's licenses No. 1, 4, and 9 "upgrade" system, indicating that the professionalization and formalization of cryptocurrency asset regulation will soon be completed in Hong Kong.

As of now, the relevant consultation conclusions were published on December 24, 2025, with further public consultation (regarding "providing opinions on cryptocurrency assets" and "cryptocurrency asset management") nearing its conclusion (ending January 23, 2026). This article will organize the regulatory advancement thoughts, analyze important documents and core changes, and provide concise hints for those interested in applying for licenses.

Timeline Overview

The evolution of Hong Kong's VA regulation can be traced back to 2018, when the SFC released the first regulatory approach statement for VA, establishing the principle framework of "same business, same risk, same rules." Although this statement did not directly address OTC and custodianship, it laid the groundwork for subsequent developments.

• 2019

The SFC launched a regulatory position paper on VA trading platforms, introducing a voluntary opt-in framework requiring platforms to comply with investor protection, asset segregation, and anti-money laundering (AML/CFT) requirements. At this time, custodianship was seen as an ancillary service of VATP, while OTC remained on the regulatory fringe.

• 2022

The amendment to AMLO introduced the definition of Virtual Asset Service Provider (VASP) and included trading and custodianship under AML, but still lacked a dedicated license. On June 1, 2023, the AMLO VASP system officially took effect, mandating VATP licenses, requiring VATPs to custodian client assets through wholly-owned subsidiaries (98% cold storage, 2% hot storage), and comply with stringent asset segregation, insurance, and auditing requirements. This represented a maturation of regulatory oversight over centralized exchanges, but gaps still exist for OTC and independent custodianship, with the possibility of market risk accumulation becoming increasingly apparent.

• March 2024

FSTB and SFC launched consultations on OTC VA trading. At the beginning of 2025, the SFC released the "A-S-P-I-Re" roadmap on February 19, clearly supporting the introduction of a dedicated OTC license to ensure parity with VATPs; while exploring flexible custodial technologies (such as dynamic storage ratios). This roadmap set a target for completing legislative preparations by the end of 2025.

• Key Turning Point: June 27, 2025

FSTB and SFC jointly released a consultation document for legislative proposals on VA trading (including OTC) and custodial services. The consultation period ended on August 29, collecting over 190 responses covering opinions from the industry, investors, and regulators. On November 3, the SFC issued a circular to expand VATP products and services, allowing VATPs to custodian non-trade VAs (such as stablecoins, tokenized securities), while relaxing the requirement for a 12-month track record; this measure has already shown significant transitional features, allowing for diverse forms of custodianship.

• December 24, 2025

FSTB and SFC released the consultation conclusions on the legislative proposals for VA trading and custodianship, while initiating further consultations on VA opinion provision and management services (until January 23, 2026).

• 2026

As further consultations are nearing completion, the AMLO amendment bill is expected to be introduced to the Legislative Council for deliberation in the first half of the year, with the effective date dependent on the progress of the deliberation. We can roughly grasp the regulatory thinking from this: custodianship and trading are moving from the periphery of regulation into the focus of vision. On one hand, the learning and exploration phase is over; the regulatory authorities are determined to completely reshape Hong Kong's VA ecosystem, rather than just implementing "localized treatment"; on the other hand, this also reflects the voice of the industry. For service providers wishing to establish a long-term presence in Hong Kong, compliance costs are preferable to bearing uncertainties in the gray area.

Document Interpretation and Legislative Trends

The question facing everyone is, which core regulatory documents have already been implemented? Which will continue to be adjusted? Are there new institutional requirements?

The following will primarily revolve around the legislative proposal consultation processes in 2025, with the legislative proposal consultation on June 27 and its conclusion on December 24 being the most representative, with the former suggesting a separate legislative framework for AMLO licensing supervision, and the latter further refining based on industry feedback.

VA Trading

1. Definition: It will be highly aligned with License No. 1 (securities trading) under the Securities and Futures Ordinance (SFO). Specifically, anyone engaging in the following activities for business purposes must apply for a license under the AMLO framework:

• Entering into or offering to enter into agreements to buy, sell, subscribe, or underwrite virtual assets with others
• Inducing others to enter into the above agreements

The definition actually covers a wide range of trading activities, including simple trades such as converting VA to fiat/VA to VA, as well as more complex brokerage services, block trades, margin trading, staking, etc. However, derivatives, structured products, and tokenized securities are under the jurisdiction of traditional SFO licenses and are not included in the new VA regulatory types.

2. Compliance Requirements: VA trading service providers must comply with strict AML requirements, including customer due diligence (CDD) and record-keeping

3. Custody: VA licensed service providers are required in the initial phase to place clients' VAs in custodial institutions regulated by the SFC to reduce the risks of bankruptcy, fraud, and cyberattacks

4. Minimum Financial Requirements: At least 5 million HKD in capital + 3 million HKD in liquid capital

5. Exempt Activities: Including internal trading, buying and selling of own assets, using VAs to pay for goods and services, necessary transactions under pure VA management, and issuance of stablecoins (already regulated by the Monetary Authority) and others

6. No Transition Period or "Deemed Licensing" Arrangement

7. Fast Track: For VATPs already holding SFC licenses and institutions holding SFC upgraded License No. 1, the SFC will provide expedited approval and assistance

VA Custody

1. Definition: Covers "custodians for any tools that can be used for virtual asset transfers" (from item (ii) in the original consultation document definition). The SFC indicates that the purpose of this definition is to be technology-neutral, emphasizing risk management based on business substance rather than form: the need for a license is not determined by decentralized technology or specific service provision.

2. Core Consideration: Private Key Management

If an entity holds a private key or similar tools and possesses unilateral transfer capabilities, then a license is required; if a multi-party computation (MPC) provider allows the client to independently reconstruct the private key and unilaterally transfer VAs, then no license is required; conversely, if transfer requires additional support (such as coordinating under MPC multi-signature scenarios), it may fall within regulatory scope. Similarly, if staking services involve custodial models (where the custodian has unilateral transfer capabilities), then a license is required; non-custodial wallets or purely delegated scenarios are exempt.

3. Exemptions:

• Internal custodianship within the group (regardless of charging);
• Private key backup holdings by legal or accounting professionals and court-designated scenarios;
• Licensed stablecoin issuers holding only their own stablecoins;
• PE/VC fund managers self-custodying investment tokens, etc.;
• Excludes trustees/fund managers who only delegate custodianship and MPC services with no transfer capabilities.

4. Individual Licensing: This is the most notable aspect, as executives, direct access personnel for private keys, signatory plan participants, private key contact personnel, etc., must be approved as RO or corresponding licensed roles and meet relevant requirements, equivalent to "personal licensing"

5. Minimum Financial Requirements: At least 10 million HKD in capital + 3 million HKD in liquid capital

6. No Transition Period or "Deemed Licensing" Arrangement

7. Fast Track

Combining the new licensing framework for the above two aspects, compared to previous frameworks, the core change in the consultation opinions and their conclusions is the introduction of dedicated licenses. In the past, if OTC involved securities VAs, it might require SFO Type 1 licenses; custodial services relied on TCSP licenses or VATP affiliates, leading to fragmented regulation.

Additionally, the upgrades of traditional SFC licenses No. 1, 4, and 9 all required holding and maintaining traditional license operations, which certainly imposed a significant burden on entrepreneurs exploring WEB3. The new framework adopts AMLO-specific licenses, covering a broader range of business models (such as P2P and decentralized services) and emphasizes technological flexibility.

The changes are also reflected in the lack of transitional period design, but rapid procedures for existing license holders can minimize the impact of market disruption. At the same time, the regulation shifts to "preventive measures," raising overall compliance levels through minimum capital thresholds and prohibiting active marketing to the Hong Kong public, among other measures.

These adjustments stem from market feedback, balancing rigor and flexibility, and avoiding the rigidity issues of the early VATP system. Overall, these documents mark an expansion of Hong Kong's VA regulation from VATP-centric to a full chain, focusing on filling gaps, unifying standards, and paving the way for institutional entry.

FSTB and SFC will finalize the AMLO amendment draft based on these conclusions. Further consultations focus on VA opinions and management licenses, expected to integrate feedback into a complete proposal after the January 23 end. Implementation time is anticipated to be early in the year, introducing the bill for Legislative Council deliberation. Given Hong Kong's efficient legislative process (usually a few months of review), if there are no significant controversies, the bill may pass by mid-year, with an effective date potentially in the second half of 2026.

Recommendations

For those familiar medium and large currency exchange shops, maintaining an SFC upgraded license incurs substantial costs, with their actual services requiring none of the other permissions—essentially a resource waste. Representing this perspective, respondents to the legislative consultation generally recognize the need for expanded regulation, viewing it as a "natural" step in Hong Kong's digital asset ecosystem.

The connection with the existing SFO framework, the strengthening of technology neutrality principles, and the design favorable to institutions (to attract banks and traditional finance) will further invigorate local vitality; meanwhile, Hong Kong plans to localize the CARF framework officially in 2027, further strengthening cross-border AML cooperation. Overall, the smooth implementation of this legislation could elevate Hong Kong's VA central position to a new level, where previous conducts of speculating regulations in the gaps actually represent a form of irresponsibility towards oneself; rather than saying that regulation is detailed in some aspects, it is better seen as a division of labor suggestion for the Hong Kong VA market.

For businesses intending to apply for VA OTC or custodianship licenses, early preparation is crucial.

• First, clarify and specify the intended business model to understand licensing compliance requirements, avoiding later adjustments and facilitating pre-application discussions with the SFC. Existing license holders can utilize expedited channels to simplify reviews.
• Second, strengthen the internal compliance system. Meet minimum financial requirements and ensure the AML/CFT mechanisms are robust. Custody applicants should emphasize investment in technical infrastructure; OTC applicants should plan cooperation with SFC-regulated custodianship, avoiding self-custody in the initial stages.
• Finally, monitor legislative dynamics, participate in industry association feedback, and train teams in advance. Although compliance increases costs, it will open opportunities for institutional capital inflow.

If you've already been considering this issue before the legislation is enacted, congratulations, you are likely already at the platform, with a train heading out from Hong Kong to the next crypto spring waiting beside you. Whether the train ticket belongs to you, you may want to chat with us after reading the article.

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