A Hong Kong securities industry association has raised objections to proposed changes in the city’s regulatory framework for digital asset management, arguing that the measures could deter traditional asset managers from entering the crypto space. In a submission to regulators on January 20, the Hong Kong Securities and Futures Professionals Association said the proposals risk imposing disproportionate compliance burdens on firms with minimal exposure to cryptocurrencies.
The concerns focus on plans to tighten licensing requirements for asset managers handling virtual assets, part of a broader effort by authorities to strengthen oversight of the sector. While the association said it supports regulatory clarity and investor protection, it warned that overly rigid rules could undermine Hong Kong’s competitiveness as an international financial center. The group emphasized that traditional managers often seek limited crypto exposure as part of diversified portfolios rather than full-scale digital asset strategies.
De Minimis Threshold at the Center of Debate
At the core of the industry’s pushback is a proposal to remove the existing de minimis threshold for Type 9 licensed managers. Under current rules, firms holding a Type 9 license, which covers discretionary portfolio and asset management, may allocate less than 10% of a fund’s gross asset value to crypto assets without obtaining an additional virtual asset license, provided regulators are notified.
The proposed changes would eliminate that flexibility, requiring a full virtual asset management license for any level of crypto exposure, even allocations as small as 1%. The association described this approach as all-or-nothing and argued that it fails to reflect the actual risk profile of limited allocations. According to the group, the change could discourage asset managers from experimenting with digital assets and slow the integration of crypto into mainstream investment products.
Legal experts have also noted that the proposal would represent a material expansion of the regulatory perimeter. Asset managers currently operating outside the Type 9 framework, including firms managing portfolios entirely composed of digital assets, could be brought under new licensing obligations, significantly increasing compliance costs and operational complexity.
Custody Rules and Broader Market Implications
Beyond licensing thresholds, the association criticized proposed custody requirements that would mandate virtual asset managers to use only custodians licensed by the Securities and Futures Commission. It warned that such restrictions could be impractical for private equity and venture capital funds investing in early-stage tokens not supported by local custodians. The group said the rule could limit Hong Kong’s ability to host Web3-focused venture funds and push activity to other jurisdictions.
At the same time, the association expressed conditional support for allowing self-custody and the use of qualified offshore custodians when serving professional investors. It framed these options as necessary to preserve flexibility while maintaining safeguards.
The debate unfolds as Hong Kong accelerates efforts to position itself as a regional crypto hub, with licensing regimes already in place for trading platforms and stablecoin issuers. Industry participants say the outcome of the consultations will signal whether the city can balance regulatory rigor with market openness as competition among global financial centers intensifies.