Industry Body Cites Concerns Over Institutional Participation and Web3 Venture Capital
The Hong Kong Securities and Futures Professionals Association (HKSFPA) has formally opposed a set of proposed regulatory changes that would tighten licensing and custody requirements for digital asset management. The association warned that these measures could deter institutional participation and effectively shut down local Web3 venture capital activity.
In a response letter submitted on January 20, the industry body criticized proposals jointly put forward by the Securities and Futures Commission (SFC) and the Financial Services and the Treasury Bureau (FSTB) as overly restrictive and misaligned with market realities.
Proposed Licensing Regime and "De Minimis" Exemption
The consultation focuses on introducing a dedicated licensing regime for virtual asset management, advisory, and dealing services as Hong Kong continues to refine its digital asset framework.
A key concern raised by the HKSFPA is the plan to remove the existing “de minimis” exemption. Under the current rules, licensed asset managers can allocate up to 10% of a fund’s assets to virtual assets without applying for a separate virtual asset management license.
The proposed changes would require managers to obtain a full virtual asset license even if only 1% of a portfolio is exposed to digital assets.
The association argued that this threshold is disproportionate and would discourage traditional fund managers from exploring digital assets in a measured, low-risk manner.
According to the HKSFPA, the move could slow institutional adoption and undermine Hong Kong’s ambition to position itself as a regional digital asset hub.
Custody Requirements and Industry Recommendations
The group also expressed strong reservations about proposed custody requirements that would mandate the use of SFC-licensed custodians for virtual assets.
It warned that such rules could be impractical for early-stage token investments and Web3 venture capital funds, which often rely on self-custody or offshore custodial solutions due to the nature of blockchain-based assets.
In its submission, the HKSFPA urged regulators to adopt a more risk-based and flexible approach. It recommended reinstating the de minimis exemption and allowing alternative custody arrangements for professional investors, particularly for venture capital and innovation-focused funds.
Balancing Regulation and Innovation
The objections highlight growing tension between regulatory caution and industry efforts to foster innovation, as Hong Kong seeks to balance investor protection with competitiveness in the global digital asset landscape.