Full Steam Ahead: After Stablecoins, Hong Kong Moves to Regulate Virtual Asset Dealing and Custody

On 27 June 2025, the Financial Services and the Treasury Bureau (“FSTB”) and the Securities and Futures Commission (“SFC”) launched two joint consultations proposing new regulatory regimes for virtual asset (“VA”) dealing services and VA custodian services (“Joint Consultations”). We have provided an overview of the proposed regimes below and included some of our key takeaways and observations which are relevant to industry stakeholders. This means virtual asset broker dealers and custodian service providers such as wallet providers could be potentially regulated under the proposed licensing regime.

Why is this important?

While entities operating a VA exchange (more commonly known as VA trading platform or VATP) are now subject to a licensing regime since June 2023, the VATP regime does not necessarily extend to VA activities taking place on non-exchanges such as VA over-the-counter (“OTC”) shops. In early 2024, the FSTB proposed a licensing regime for OTC spot trading of VAs (“2024 Consultation”) largely due to concerns that VA OTC shops were involved in channelling retail investor’s funds to suspected fraudulent schemes. However, during the consultation process, it became clear that custodial arrangements for client assets were not adequately addressed, despite these being a key component of VA dealing services.

In response, on 27 June 2025, the FSTB and SFC issued two joint consultation papers (“Joint Consultations”):

1. VA dealing services – to introduce a new licensing regime for OTC trading and other VA dealing services; and
2. VA custodian services – to introduce a new licensing regime for VA custodians to ensure proper safekeeping of client assets.

As a recap, key milestone dates in Hong Kong’s virtual asset regulatory timeline are summarised below.

What is covered under the proposed licensing regimes? 

What is VA Dealing?

Under the Joint Consultations, VA Dealing means (a) making or offering to make an agreement with another person; or (b) inducing or attempting to induce another person to enter into or to offer to enter into an agreement:

• for or with a view to acquiring, disposing of, subscribing for or underwriting VAs; or
• the purpose or pretended purpose of which is to secure a profit to any of the parties from the yield of VAs or by reference to fluctuations in the value of VAs.

This would essentially cover simple services like VA-to-VA or VA-to-fiat conversions, complex services like brokerage, block trading, advisory or asset management that involves VA trading, and physical outlet or other platforms.

Key observations / points to note:

• SFO definition: Those familiar with the SFO will note that the definition is a direct mirror of dealing in securities under the SFO. It remains to be seen whether further exemptions to the definition may be provided, as otherwise the current definition of “VA Dealing” appears to be broad and may have unintended effects on scope.

• P2P & B2B transactions: The Joint Consultations do clarify that peer-to-peer trading between individuals which does not involve intermediaries will be excluded, but do not specifically clarify whether B2B exchange of VA will also be excluded e.g. using VAs to settle payment of goods or services.

• Key differences between the Joint Consultations and the 2024 Consultation:
  • Scope of VA Dealing: The scope has been expanded from a primary focus on OTC spot trading to various forms of VA dealing (see above). Further, VA Dealing was previously proposed to be limited to fiat-to-VA (vice versa) dealing only, specifically excluding VA-to-VA dealings on the view that these are uncommon in OTC shops. SFC has since expanded the focus to cover VA-to-VA conversions as well.
  • Scope of Custody: Custody of client VA is was previously proposed to be prohibited unless it is temporary and indispensable part of the transaction process. Given industry feedback that certain complex arrangements will involve custody of client VAs, this position is now changed to requiring client VAs to be kept in custody by licensed VA custodians in Hong Kong.

What is VA Custody service?

The proposed definition for VA Custody service refers to, by way of business, the safekeeping of:

• VAs on behalf of clients; or
• instruments enabling transfer of VAs of clients (including but not limited to private keys) on behalf of clients (note: this is intended capture the safeguarding of private keys or similar instruments such as smartcards, authentication credentials for accessing the private keys).

Key observations / points to note:

• Third party providers: The SFC recognises that certain providers engage third parties or affiliates either in the joint safekeeping of private keys (e.g. key shards) or appoint VA custodian service providers to safekeep the private keys. The SFC is still considering the licensing implications and expectations in these complex arrangements.
• TCSP licence: The SFC also recognises that existing VA custodian service providers in Hong Kong remain outside of SFC and HKMA’s oversight resort as they resort to applying for a Trust and Company Service Provider (“TCSP”) licence in Hong Kong which is regulated by the Companies Registry. With the proposed introduction of VA Custodian licence, this will bring VA related services, including custody, under a more unified regulatory approach (though it then remains unclear whether SFC licensed custody service providers will still require a TCSP licence).
• Staking: Based on customer demand, many custody service providers in the market also provide staking services. The SFC recognises this and considers that staking should be allowed as part of VA custodian services, subject to SFC/HKMA approval as applicable on a case-by-case basis.

Transitional arrangements

Unlike the previous regime regulating VATPs, it is likely that the proposed licensing frameworks for VA Dealing and VA custodian services will not include any deeming arrangement for pre-existing service providers. In other words, businesses will not be automatically granted a license under these new regimes. To minimise business interruption, they are encouraged to obtain the relevant licence or registration before the new statutory requirements come into effect, which is expected in 2026. Industry stakeholders who are currently engaged in VA Dealing or VA Custody services should reach out to the SFC and the HKMA as soon as possible to initiate a pre-application process.

If you would like to discuss this further, our team is here to help.

Key takeaways and next steps

The Joint Consultations mark a significant step in Hong Kong’s ongoing efforts to establish itself as a premier global hub for VAs. The FSTB and SFC have been inviting feedback from relevant stakeholders to refine the proposed regimes and the Joint Consultations will remain open until 29 August 2025. Looking forward, following consultation conclusions, the FSTB and SFC are aiming to introduce a bill into the Legislative Council as soon as practicable to amend the AMLO and establish the new licensing regimes. The government will also be holding separate consultation exercise on regulatory requirements for licensees e.g. fit-and-proper, AML/CFT controls, risk management etc.

In addition, the Government has signalled ongoing work on tokenising a broader range of assets and financial instruments such as tokenised government bonds and exchange-traded funds, as well as the tokenised real-world assets, expanding to sectors such as precious metals, non-ferrous metals and renewable energy. These developments align with Hong Kong’s broader vision under the “LEAP” framework, which was introduced to (i) support tokenisation of real-world assets, (ii) expand tokenised product offerings, (iii) encourage collaboration among regulators and tech providers, and (iv) strengthen talent development. These efforts are expected to lead to further consultations and regulatory developments in the year ahead.

We are keeping a close eye on these developments – feel free to reach out to our team if you would like to discuss this further.