A leading Hong Kong securities industry body has issued a formal warning to regulators, claiming that proposed changes to the city’s digital asset framework could drive traditional investors away from the cryptocurrency market.
In a submission delivered Tuesday, the Hong Kong Securities and Futures Professionals Association (HKSFPA) raised sharp objections to what it described as a “disproportionate” regulatory overhaul. The group argued that the new rules would significantly increase the compliance burden for asset managers, potentially stifling the city’s growth as a financial technology hub.
At the heart of the dispute is the proposed removal of the “de minimis” threshold for Type 9 license holders, which currently governs discretionary portfolio and asset management. Under the existing framework, firms can allocate up to 10% of a fund’s gross asset value to crypto assets without needing a specialized license uplift, provided they notify the Securities and Futures Commission (SFC).
The new proposal would eliminate this buffer entirely, requiring a full virtual asset management license for even a minimal 1% allocation to assets like Bitcoin. The HKSFPA characterized this as an “all-or-nothing” approach that imposes heavy costs for limited risk exposure, effectively deterring traditional managers from experimenting with the asset class.
Legal experts at JunHe LLP noted that the shift would also catch managers who currently operate entirely outside the Type 9 framework. Some firms managing 100% digital asset portfolios do not currently hold these licenses because their holdings are not classified as traditional securities.
Under the proposed regime, these firms would be forced into the regulatory net, which lawyers say marks a material shift in expectations and a significant expansion of the regulatory perimeter.
The HKSFPA further criticized proposed custody requirements that would mandate virtual assets be held exclusively through SFC-licensed providers. The industry group argued this is impractical for venture capital and private equity funds that often invest in early-stage tokens not yet supported by local custodians.
They warned that such a strict mandate could prevent Hong Kong-based managers from operating Web3-focused funds. While critical of these constraints, the association did express support for government considerations regarding self-custody and the use of qualified offshore custodians when serving professional investors.
These regulatory hurdles arrive as Hong Kong aggressively positions itself as a global crypto hub, having already established frameworks for trading platforms and stablecoin issuers. The Financial Services and the Treasury Bureau and the SFC are currently reviewing industry feedback as they move toward finalizing these stricter licensing regimes.
