In brief
On 19 February 2025, the Securities and Futures Commission (SFC) issued a regulatory roadmap (Roadmap) for Hong Kong's virtual asset (VA) market. Entitled "'A-S-P-I-Re' Roadmap for a Resilient Virtual Asset Ecosystem"[1], it sets out a five-pillar framework (Access, Safeguards, Products, Infrastructure, and Relationships) that is intended to serve as a strategic action plan for addressing emerging new priorities in the VA space (e.g., managing liquidity fragmentation and ensuring investor protection across decentralized and centralized platforms) and, in the SFC's words, "future-proof[ing] Hong Kong's VA ecosystem". The various pillars include specific regulatory initiatives – notably, the planned establishment of licensing regimes for VA over-the-counter (OTC) trading services and custodian services, exploring professional investor-specific regulatory frameworks, and a regulatory framework for financial influencers.
In a related development, the Financial Secretary's 2025-26 Budget Speech (26 February 2025) noted that consultations on the proposed licensing regimes for VA OTC trading and custodian services will take place in 2025. He also stated that the Government plans to issue a second policy statement on the development of VAs[2].
Background
The SFC has integrated its core regulatory principles into the Roadmap after analyzing the market’s composition, dynamics and geographic nuances including:
- market manipulation, system fragility, misinformation, fraud and volatility risks resulting from market dominance by certain institutional players and retail speculation
- a fragmented liquidity landscape with centralized exchanges (CEXs), decentralized exchanges (DEXs) and OTC markets
- cross-border regulatory arbitrage and compliance challenges for global firms resulting from a diverse international regulatory landscape with different VA adoption and regulatory approaches
The SFC also highlighted two trends which are expected to shape the future landscape: (i) a trend towards harmonising global regulatory standards and (ii) the increasing interplay between traditional finance (TradFi) and VAs.
The Roadmap
The key elements and objectives of the five strategic Roadmap pillars are as follows:
- Pillar A (Access) – Streamlining market entry through regulatory clarity: This pillar is aimed at expanding market accessibility, encouraging responsible participation, and enhancing investor opportunities (e.g., by developing clear licensing frameworks so compliant VA service providers (VASPs) can enter the market efficiently). Specific initiatives include:
- establishing licensing regimes for VA OTC trading and custody services
- attracting major international VA platforms, order flows and institutional-grade liquidity providers to Hong Kong
These initiatives are intended to expand the scope of Hong Kong's regulated VA market (currently covering mainly VA trading platforms (VATPs) and other SFC-regulated intermediaries, but not yet non-VATP entities such as OTC dealers and custodians) and improve liquidity and diversity in service offerings, investor choice and market competitiveness, as well as enhance the VA liquidity flow to reinforce Hong Kong’s appeal as a competitive virtual asset marketplace.
- Pillar S (Safeguards) – Optimising compliance burdens without compromising security: This pillar is aimed at aligning compliance requirements, adopting a flexible and outcome-driven regulatory approach and empowering market participants through clarity and proportionality. Specific initiatives include:
- exploring a more flexible approach to custody technologies (e.g., using more technology-neutral, outcome-based standards instead of mandating specific hardware solutions) and hot/cold storage ratios (e.g., adopting a more holistic security approach)
- enhancing insurance and compensation frameworks (e.g., allowing them to be more diverse and risk-based commensurate with a firm's business operations and investor profiles)
- providing further guidance on investor onboarding processes and product categorization
The initiatives under Pillar S are intended to balance investor protection with pragmatic adjustments to Hong Kong's compliance requirements (and their initial emphasis on stringent safeguards to address nascent risks) that enhance competitiveness.
- Pillar P (Products) – Expand product offerings and services based on investor categorization: This pillar focuses on expanding the range of VA products and services available in Hong Kong's regulated market, tailored to different investor categories' needs, but with robust safeguards to protect retail investors. Specific initiatives include:
- exploring a regulatory framework for professional investor-exclusive new token listings and VA derivative trading
- exploring alignment of margin financing requirements with risk management protocols in the traditional securities market
- considering to allow the provision of staking and borrowing/lending services within the regulated ecosystem (e.g., with robust requirements on custody and operations and risk management)
- Pillar I (Infrastructure) – Modernise reporting, surveillance and cross-agency: This pillar is aimed at strengthening market-wide oversight capabilities, early detection of illicit activities and misconduct, and the pre- and post-incident safeguarding of investor assets. Specific initiatives include:
- considering solutions for efficient regulatory reporting and deploying advanced surveillance tools to detect illicit activities (e.g., options for straight-through reporting of digital asset information, instead of focusing primarily on incident-related reporting)
- better local cross-agency collaboration and cross-border cooperation with global regulators
- Pillar R (Relationships) – Empower investors and industry through education, engagement and transparency: Key objectives of this pillar are to enhance investor understanding of VA features and risks, foster industry participation (e.g., sharing of industry stakeholders' insights) and promoting fit-for-purpose policymaking. Specific initiatives include:
- considering a regulatory framework for financial influencers
- cultivating a sustainable communication and talent network with industry stakeholders
Key Takeaways
Businesses and investors engaging, or intending to engage, in the provision of VA-related activities in Hong Kong should closely follow the development of Hong Kong's continuously evolving VA regulatory framework to plan ahead and seek professional support to fully understand the potential legal and regulatory implications of engaging in such activities.
For detailed guidance and compliance assistance, please contact our legal team.
