Hong Kong is solidifying its position as a global financial hub by establishing a clear and progressive regulatory environment for virtual assets. The region's approach has evolved from ambiguity to a structured, compliant-friendly system that encourages innovation while managing risk.
The 2022 policy reforms marked a significant shift, demonstrating the government’s willingness to embrace virtual asset services and businesses. These regulatory enhancements aim to align with international standards and protect investors, without stifling technological progress.
Definition of Virtual Assets in Hong Kong
According to the Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Ordinance 2022, virtual assets are defined as:
- A cryptographically secured digital representation of value;
- Expressed as a unit or store of economic value;
- Capable of being transferred, stored, or traded electronically;
- Used or intended for use as a medium of exchange for goods, services, debt repayment, or investment.
This broad definition encompasses utility tokens, non-security digital collectibles, and even emerging forms of digital value. Whether an asset has financing attributes or serves as a currency or digital collectible, it currently falls under Hong Kong’s virtual asset category.
It's important to note, however, that not all virtual assets are subject to licensing requirements or oversight by the Securities and Futures Commission (SFC). Regulatory applicability depends largely on the asset’s characteristics and usage.
Regulatory Approach: Activity-Based Oversight
Hong Kong employs a nuanced, activity-based regulatory model. The key consideration is whether a virtual asset qualifies as a "security" or a "futures contract" under the Securities and Futures Ordinance (SFO).
For instance, the 2019 Position Paper: Regulation of Virtual Asset Trading Platforms clarified that the SFC does not license or supervise platforms that deal exclusively in non-security tokens. Similarly, the Statement on Initial Coin Offerings highlighted that digital tokens representing securities fall under existing regulatory frameworks.
In short: any person or entity conducting "regulated activities"—whether in Hong Kong or targeting Hong Kong investors—must be licensed or registered with the SFC.
Asset-Specific Regulatory Treatment
Security Token Offerings (STOs)
Security tokens represent traditional asset rights—such shares, debt, or profit-sharing entitlements—using blockchain technology. These are considered “securities” under the SFO.
Any promotion, distribution, or trading of security tokens directed at the Hong Kong public constitutes a Type 1 (dealing in securities) regulated activity. Unlicensed activities may lead to criminal penalties or fines.
👉 Learn more about security compliance
Virtual Asset Tokens
The 2022 Amendment Ordinance introduced a formal definition for virtual assets and established a licensing regime for Virtual Asset Service Providers (VASPs). Only entities licensed by the SFC can operate virtual asset exchanges or provide custodial services in Hong Kong.
The definition allows authorities to expand the scope of regulated virtual assets via gazette notice, providing flexibility as the market evolves.
Stablecoins
Stablecoins are digital assets pegged to stable reserves like fiat currency or commodities. While currently not specifically regulated, they fall under the general virtual asset definition.
The Hong Kong Monetary Authority (HKMA) has conducted consultations and is expected to introduce a regulatory framework soon. This will likely include licensing under the Payment Systems and Stored Value Facilities Ordinance.
Key risks being considered include:
- Financial and monetary stability
- Settlement and user protection
- Cybersecurity and compliance
Exchange-Traded Funds (ETFs)
In October 2022, the SFC released a circular permitting the public offering of virtual asset futures ETFs. These must track futures contracts listed on approved exchanges like the Chicago Mercantile Exchange (CME).
Initial offerings are limited to Bitcoin and Ether futures ETFs. All ETFs must comply with the SFC’s code for unit trusts and mutual funds.
Non-Fungible Tokens (NFTs)
NFTs are generally treated as digital collectibles rather than regulated financial assets—unless they exhibit characteristics of securities or collective investment schemes (CIS).
Examples of regulated NFTs may include:
- Fractionalized NFTs representing shared ownership of an asset
- NFTs that entitle holders to profit shares or financial returns
Purely artistic or in-game NFTs remain unregulated under securities laws but are still subject to general consumer protection regulations.
Frequently Asked Questions
What qualifies as a “security” token in Hong Kong?
Tokens that represent ownership, debt, or entitlement to profits are likely considered securities. These fall under the SFO and require licensing for any related activity aimed at the public.
Are foreign VASPs required to comply with Hong Kong regulations?
Yes. Any virtual asset service provider targeting Hong Kong investors must obtain appropriate licensing from the SFC, regardless of physical location.
How are decentralized finance (DeFi) platforms treated?
Currently, DeFi platforms may still fall under regulatory scrutiny if they facilitate trading of security tokens or perform regulated activities. The regulatory stance is still evolving.
Can NFTs be used for fundraising?
If an NFT offering resembles a securities issuance—e.g., by offering investment returns or shared ownership—it will be treated as a regulated activity under the SFO.
What is the penalty for operating without a VASP license?
Unlicensed operation of a virtual asset exchange can result in severe financial penalties and imprisonment under the AMLO.
Is Hong Kong planning to regulate stablecoins?
Yes. The HKMA is expected to introduce a dedicated regulatory framework for stablecoins, likely based on existing stored value facilities rules.
Conclusion
Hong Kong is building a comprehensive yet adaptable regulatory system for virtual assets. Its approach balances market integrity with innovation, focusing on investor protection and anti-money laundering compliance.
As the virtual asset landscape continues to evolve, businesses and investors should stay informed through official SFC and HKMA communications to ensure ongoing compliance.