Concerns from industry groups over Hong Kong's strengthened asset management regulations and the "all or nothing" approach

Hong Kong financial regulators’ new digital asset management framework proposal is facing fierce industry resistance. The Hong Kong Securities and Futures Professionals Association (HKSFPA) warns that this regulatory proposal could significantly hinder traditional asset management companies from entering the market and is calling for a more flexible regulatory design.

A Regulatory Proposal That Significantly Reverses Current Rules

Under the current Hong Kong SFC (Securities and Futures Commission) regulations, institutions holding a Type 9 license (asset management) are permitted to allocate up to 10% of their total fund assets to digital assets without obtaining a full virtual asset management license. This is known as a “deminimis” (minimal exception) arrangement, which initially allowed early-stage asset management firms to enter the cryptocurrency market.

According to Odaily reports, the proposed framework would completely eliminate this cap and require full virtual asset management licensing even for a 1% allocation to Bitcoin. HKSFPA strongly criticizes this “all-or-nothing” regulatory design.

Concerns Over Compliance Cost Burden

The association argues that this regulatory change is unbalanced. Despite limited risk exposure, companies would face significant compliance requirements and enormous costs. For small and medium-sized asset management firms, the process of obtaining new licenses and establishing monitoring systems would pose a substantial operational burden.

As a result, barriers to entry for traditional asset managers into the digital asset market would be greatly increased, potentially damaging the overall competitiveness of the industry.

Overly Strict Custody Requirements

Another problematic aspect is the custody (asset safekeeping) requirements. The proposal mandates that virtual asset managers must use only custodians licensed by the SFC.

HKSFPA claims that this requirement is impractical for early-stage token investments and Web3 venture capital activities. It would impose stricter restrictions on local institutions participating in related businesses and raise concerns about Hong Kong’s diminished presence in the international asset management market.

The association supports a more flexible approach that allows self-custody services limited to professional investors and the use of highly-rated overseas custodians.

Industry Voices Amid Regulatory Consultations

Recently, Hong Kong authorities announced a new consultation outline for licensing systems related to cryptocurrency trading, advisory, and asset management services. These regulatory proposals are still under development, with ongoing adjustments toward final policy decisions.

In response to industry opposition, whether regulators will reconsider and adopt a more practical regulatory framework will be a key factor influencing the future growth of Hong Kong’s digital asset market and asset management industry.