Hong Kong is moving ahead with plans to expand its regulatory framework for the virtual asset sector, as authorities prepare new licensing regimes for virtual asset dealers and custodians. The move marks another step in the city’s effort to bring more crypto-related activities under formal oversight. The government said the new regimes will sit alongside the existing licensing system for virtual asset trading platforms, which is already supervised by the Securities and Futures Commission. Officials aim to close regulatory gaps covering firms that deal in digital assets or hold client crypto assets outside licensed exchanges. The proposals follow public consultations conducted by the Financial Services and the Treasury Bureau and the SFC. Authorities reported broad support from market participants and said they will now move toward legislative drafting. New Licenses Target Dealers and Custodians Under the planned framework, virtual asset dealers will require a license to provide dealing services, including over-the-counter crypto transactions. Regulators said this will bring these firms under standards similar to those applied to traditional securities dealers, while adjusting requirements to reflect crypto-specific risks. Virtual asse t custodians will also fall under a dedicated licensing regime. These firms are responsible for safeguarding client digital assets, including private keys. The government said custody rules will focus on asset segregation, internal controls, and operational resilience to reduce the risk of losses or misuse. The SFC will oversee both regimes, expanding its role beyond trading platforms. Officials said the goal is to ensure consistent supervision across the virtual asset ecosystem, rather than limiting oversight to exchanges alone. Framework Builds on Existing Platform Rules Hong Kong already requires virtual asset trading platforms to hold an SFC license. The regulator publishes a public register showing licensed platforms and applicants, giving investors visibility into which firms are authorized to operate. The new dealer and custodian regimes are designed to complement this system. Authorities said some firms currently operate outside the trading platform model but still handle client crypto assets or execute trades. The new rules aim to bring those activities within the same regulatory perimeter. Officials said the expanded framework supports investor protection while maintaining Hong Kong’s role as a digital asset hub. The government plans to submit legislation to the Legislative Council after completing technical work on the rules. Once implemented, the regimes will further formalize Hong Kong’s crypto market, aligning it more closely with traditional financial regulation while accounting for the distinct features of virtual assets.
