Proposed Regulatory Changes Spark Opposition
Hong Kong’s proposed regulatory changes for digital asset management have sparked strong opposition from industry experts. The Hong Kong Securities and Futures Professionals Association (HKSFPA) has raised concerns that the stricter rules could deter traditional asset managers from entering the cryptocurrency space.
Removal of "De Minimis" Threshold Draws Criticism
The main issue lies in the proposed removal of the “de minimis” threshold for Type 9 licensed managers. Under the current framework, these firms can invest up to 10% of a fund’s gross asset value in digital assets without requiring a separate virtual asset management license, provided they notify the regulator.
However, the new rules would mandate that any exposure, no matter how small, such as a 1% investment in Bitcoin, would require a full virtual asset management license. The HKSFPA argues that this “all-or-nothing” approach is overly burdensome and could discourage asset managers from experimenting with cryptocurrencies, given the significant compliance costs for minimal risk exposure.
The proposed changes would also affect asset managers who are currently outside the Type 9 licensing framework. Some managers, who focus exclusively on digital assets, do not hold a Type 9 license because their activities do not fit the traditional model of managing securities portfolios.
Under the new regulations, they would be forced to obtain a virtual asset management license, expanding the regulatory scope and imposing additional regulatory hurdles.
Custody Rules and Potential Impact on VC Funds
Additionally, the HKSFPA has criticized the proposed custody rules, which would require virtual asset managers to hold assets exclusively with Securities and Futures Commission (SFC)-licensed custodians. This, the association argues, could be impractical for private equity and venture capital (VC) funds that invest in early-stage tokens not yet supported by local custodians.
The group warns that this requirement might prevent Hong Kong-based managers from operating Web3-focused VC funds, potentially stifling innovation in the digital asset sector.
Despite these concerns, the HKSFPA expressed support for the government’s consideration to allow self-custody and the use of qualified offshore custodians for professional investors.
Broader Ambitions and Regulatory Landscape
The regulatory changes are part of Hong Kong’s broader efforts to position itself as a crypto hub, with new frameworks for virtual asset trading platforms and stablecoin issuers already in place. However, the proposed regulations, if implemented, could discourage traditional asset managers from entering the market, potentially slowing the city’s ambitions to become a global leader in digital assets.