Hong Kong’s Securities Body Pushes Back Against Tighter Crypto Licensing Rules—Here’s Why It Matters

Hong Kong's financial regulators are hitting the brakes. Just as global watchdogs clamor for stricter crypto oversight, the city's securities authority is pushing back against proposed licensing clampdowns. This isn't just bureaucratic friction—it's a strategic play for financial dominance.

The Regulatory Tug-of-War

While traditional finance hubs tighten the screws, Hong Kong is loosening its grip. The move signals a deliberate pivot: attract crypto innovation while others scare it away. It's a high-stakes gamble on becoming Asia's digital asset gateway, betting that smart regulation beats heavy-handed bans.

Why This Standoff Changes Everything

This resistance creates a regulatory arbitrage opportunity. Firms facing hostile environments elsewhere now have a clear alternative. Expect capital flows, talent migration, and infrastructure development to follow the path of least resistance—straight toward more favorable jurisdictions.

Hong Kong's stance reveals a fundamental truth about modern finance: you can either control the revolution or be left behind by it. The city seems tired of watching from the sidelines while traditional finance gatekeepers pretend blockchain is just a passing fad—the same ones who once dismissed the internet as a niche hobby for tech enthusiasts.

Proposed Rule Would Scrap 10% Crypto Threshold

Under today’s uplifted regime, Type 9 managers can invest less than 10% of a fund’s gross asset value in virtual assets without seeking a separate virtual asset management licence, as long as they notify the Securities and Futures Commission. The proposal under consultation would remove that threshold.

The industry group said the change effectively forces an “all-or-nothing” decision for firms that want to test crypto as a diversifier.

“This ‘all-or-nothing’ approach is disproportionate,” it wrote, adding that it would impose major compliance costs even when risk exposure stays limited.

It also urged regulators to bring the carve-out back in a clear, risk-based form. “We strongly propose reinstating a de minimis exemption,” the association said, arguing that managers below a set threshold should face a notification requirement rather than the full virtual asset management regime.

The submission lands amid Hong Kong’s broader effort to widen its digital-asset rulebook. The Financial Services and the Treasury Bureau and the SFC published consultation conclusions in December on licensing for virtual asset dealing services, and they opened a further public consultation on proposed licensing regimes for virtual asset advisory and management service providers.

Hong Kong moves forward with crypto licensing for dealers, custodians, and advisory firms, strengthening oversight and investor protections. #CryptoRegulation #HongKonghttps://t.co/1ENWDTDJfg

Licensing Expansion Aims To Match Institutional Growth

Custody rules have become another pressure point. The association criticized proposals that would require virtual asset managers to use only SFC-licensed custodians, saying the mandate could prove unworkable for private equity and venture funds that buy early-stage tokens that local custodians do not yet support.

Hong Kong’s regulators have pitched the new licensing architecture as part of a push to bring more activity onshore, while tightening standards as institutional participation grows. Officials have also signalled they want a framework that can plug into existing regulated activity, rather than leaving crypto exposure to ad hoc interpretations.

The debate matters because it goes to how quickly traditional finance joins the trade. Keeping a 10% carve-out makes it easier for stock and bond managers to add a small sleeve of bitcoin or other tokens, while removal raises the bar to a full licence even for experimentation, creating a higher fixed cost before firms see meaningful demand.

Hong Kong has tried to balance that tension by expanding licensing while also smoothing market plumbing in other areas, including steps aimed at improving liquidity at regulated virtual asset trading platforms.

Regulators have not finalised the advisory and management proposals, and the current consultation process is designed to gather feedback before legislative work moves forward. The government has said it plans to refine proposals and take legislation to the city’s legislature in 2026.