Hong Kong has recently demonstrated strong governmental support and a clear intention to position itself as a leading hub for the cryptocurrency market in Asia. This article provides a comprehensive overview of the regulatory attitude, framework, and infrastructure governing cryptocurrencies in Hong Kong, offering readers a clear understanding of the local legal environment and industry development.
Hong Kong’s Regulatory Approach to Cryptocurrency
A Shift Toward Openness and Support
On October 31, 2022, the Financial Services and the Treasury Bureau (FSTB) of Hong Kong released the Policy Declaration on Development of Virtual Assets in Hong Kong. This document signifies the government’s open, inclusive, and innovation-friendly stance toward public participation in virtual asset trading, tokenized asset protection, and stablecoin development.
In addition, the Hong Kong government has actively engaged in experimental initiatives, including NFT issuance, green bond tokenization, and the digital Hong Kong dollar (e-HKD). These pilots aim to evaluate the benefits of virtual asset technologies and explore their broader application within financial markets.
While Hong Kong maintains a relatively open attitude toward cryptocurrencies, it also emphasizes risk management and market standardization. Multiple regulatory bodies have issued public statements clarifying that virtual asset trading platforms, stablecoins, and central bank digital currencies (CBDCs) will be subject to clear regulatory oversight to mitigate market risks and protect investor interests.
Key Regulatory Bodies and Their Responsibilities
Financial regulation in Hong Kong is primarily managed by the following institutions:
- Financial Services and the Treasury Bureau (FSTB): Responsible for formulating financial policies and submitting legislative proposals.
- Hong Kong Monetary Authority (HKMA): Tasked with maintaining the stability of the financial system and banking sector, as well as managing the Exchange Fund to ensure the stability of the Hong Kong dollar.
- Securities and Futures Commission (SFC): Oversees and promotes the development of securities and futures markets, and licenses entities for regulated activities.
- Insurance Authority (IA): Supervises the insurance industry, protects policyholders, and promotes stable market development.
Self-regulatory organizations such as the Hong Kong Association of Banks, Hong Kong Exchanges and Clearing Limited (HKEX), and the Hong Kong Federation of Insurers also play important roles in industry supervision.
Notably, Hong Kong does not have a single dedicated regulator for crypto assets. Instead, oversight is shared among existing financial authorities, with the SFC and HKMA having published specific guidance for the cryptocurrency sector.
Evolution of Crypto Regulation in Hong Kong
The regulatory landscape has developed significantly over recent years:
- September 2017: The SFC issued a statement clarifying that initial coin offerings (ICOs) may require licensing under securities law.
- December 2017: A circular was released concerning Bitcoin futures contracts and crypto-related investment products.
- November 2019: Regulatory oversight of cryptocurrency exchanges began, mandating that only licensed centralized exchanges (CEXs) could offer services to investors.
- June 2022: Investors were alerted to the risks associated with non-fungible tokens (NFTs), noting that many NFTs represent underlying assets.
- October 2022: The FSTB released the policy declaration, signaling openness to virtual asset development.
- December 2022: The Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Ordinance was passed.
- January 2023: A discussion paper on crypto assets and stablecoins was published, requiring full backing and redemption at face value for stablecoins.
- February 2023: The SFC released a consultation paper on proposed regulatory requirements for virtual asset trading platform operators.
- June 2023: The Virtual Asset Service Provider (VASP) licensing regime came into effect.
- August 2023: The government announced that licensed exchanges could serve retail investors.
- January 2024: Strategic priorities for 2024–2026 were outlined, emphasizing crypto-focused technological innovation.
Categories of Financial Licenses
The SFC issues ten types of financial licenses:
- Type 1: Securities Dealing
- Type 2: Futures Contract Dealing
- Type 3: Leveraged Foreign Exchange Trading
- Type 4: Securities Advisory
- Type 6: Advising on Corporate Finance
- Type 7: Automated Trading Services
- Type 8: Securities Margin Financing
- Type 9: Asset Management
- Type 10: Credit Rating Services
Among these, Type 1 (securities dealing) and Type 7 (automated trading services) are essential for operating a compliant exchange. A Type 9 license (asset management) is also significant as it permits the custody of client funds, a prerequisite for managing public or private funds.
Specific Regulatory Measures
Virtual Asset Service Provider (VASP) Licensing
Since June 1, 2023, all virtual asset exchanges operating in Hong Kong must be licensed by the SFC under the VASP regime. Licensees must comply with anti-money laundering (AML) and counter-terrorist financing (CTF) regulations, ensure fund security and client asset segregation, and establish robust internal controls and audit mechanisms.
As of now, only two exchanges—OSL and HashKey—have obtained full VASP licenses. The SFC has received 22 applications from other major global and regional platforms, which are currently under review.
Requirements for licensed exchanges include:
- Maintaining at least HK$5 million in paid-up capital.
- Implementing strict internal controls for private key management, including secure generation, storage, and backup—all within Hong Kong.
- Holding sufficient liquid assets (e.g., cash, deposits, treasury bills) in Hong Kong to cover 12 months of operational expenses.
👉 Explore compliant trading platforms
Cryptocurrency ETFs
On December 22, 2023, the HKMA and SFC jointly issued updated guidance permitting applications for both spot and futures virtual asset ETFs. Key regulatory requirements include:
- Manager Qualifications: ETF managers must have a solid compliance record, employ staff with relevant virtual asset experience, and hold an upgraded Type 9 license.
- Eligible Assets: ETFs may only invest in assets tradable by retail investors on licensed exchanges in Hong Kong.
- Leverage Restrictions: No leverage is permitted at the fund level.
- Creation and Redemption: Both cash and in-kind models are allowed.
- Custody: Assets must be held with licensed exchanges or HKMA-approved financial institutions.
Stablecoin Regulation
Hong Kong is advancing dedicated legislation for regulating fiat-referenced stablecoins (FRS). Issuers of stablecoins—particularly those linked to the Hong Kong dollar or marketed to the Hong Kong public—will require a license from the HKMA.
Key proposed requirements include:
- Full backing with reserve assets and redemption at face value.
- Prior approval from the HKMA for new business initiatives.
- Only licensed issuers may offer stablecoins to retail investors; unlicensed stablecoins are restricted to professional investors.
Central Bank Digital Currency (CBDC)
The HKMA is actively researching and testing a retail CBDC, the digital Hong Kong dollar (e-HKD), as part of its broader strategy to integrate digital finance and virtual asset innovation.
Sandbox Framework
The HKMA and SFC operate a fintech sandbox that allows crypto businesses and startups to test their products in a controlled environment. This encourages innovation while enabling regulators to monitor and mitigate risks.
Virtual Asset Funds
Virtual asset funds in Hong Kong are permitted but may only target professional investors. Fund managers must be licensed by the SFC and are required to provide comprehensive risk disclosures to ensure investors understand the associated risks.
Anti-Money Laundering and Counter-Terrorist Financing
All cryptocurrency businesses, including exchanges and wallet providers, must comply with Hong Kong’s AML/CTF regulations. This includes conducting know-your-customer (KYC) checks, monitoring transactions, and reporting suspicious activities. Regular audits and internal controls are mandatory to ensure ongoing compliance.
Investor Protection Measures
Only SFC-licensed virtual asset trading platforms are permitted to serve Hong Kong investors. These platforms must implement strong custody solutions, insurance coverage, and compliant storage of client assets to ensure investor protection.
Frequently Asked Questions
What is the VASP license and who needs it?
The Virtual Asset Service Provider (VASP) license is required for any virtual asset exchange operating in Hong Kong. It mandates compliance with AML/CTF rules, capital requirements, and strict custody standards to protect investors and ensure market integrity.
Can retail investors trade cryptocurrencies in Hong Kong?
Yes, since August 2023, licensed exchanges are permitted to offer services to retail investors. However, only platforms approved by the SFC are allowed to operate legally.
How does Hong Kong regulate stablecoins?
Hong Kong is developing a new licensing regime for fiat-referenced stablecoins (FRS). Issuers must hold sufficient reserves, enable redemption at par, and obtain approval from the HKMA. Only licensed stablecoins can be offered to retail users.
Are cryptocurrency ETFs available in Hong Kong?
Yes, the SFC began accepting applications for virtual asset ETFs—both spot and futures—in December 2023. These products must comply with strict rules regarding asset custody, eligible investments, and manager qualifications.
What role does the SFC play in crypto regulation?
The Securities and Futures Commission (SFC) oversees virtual asset trading platforms, licenses financial intermediaries, and regulates crypto-based financial products such as ETFs and funds. It works alongside the HKMA to ensure a cohesive regulatory approach.
How does Hong Kong protect crypto investors?
Investor protection measures include mandatory licensing for exchanges, strict custody requirements, capital adequacy rules, and comprehensive AML and KYC procedures. Only platforms that meet these standards are allowed to serve the public.