Hong Kong Asset Managers Warn Crypto Rules Could Chill Traditional Funds

A leading Hong Kong securities industry group has raised fresh concerns over the city’s evolving digital asset regulations, cautioning that proposed changes could make it harder for traditional asset managers to gain even limited exposure to cryptocurrencies.

In a submission filed Tuesday, the Hong Kong Securities and Futures Professionals Association (HKSFPA) criticized plans to scrap the long-standing “de minimis” exemption for Type 9 licensed managers. Under current rules, firms with a Type 9 license — covering discretionary portfolio and asset management — can allocate up to 10% of a fund’s gross asset value to crypto assets without applying for a separate virtual asset license, as long as regulators are notified.

The new proposal would remove that threshold entirely. As a result, even a marginal crypto allocation — such as a 1% position in bitcoin — would trigger the need for a full virtual asset management license.

The association described the approach as disproportionate, arguing that it would saddle managers with heavy compliance costs despite minimal risk exposure. In its view, the move could discourage traditional firms from cautiously testing digital assets within diversified portfolios.

The pushback comes as Hong Kong regulators advance reforms first outlined in consultation conclusions published last December, following a public consultation launched in June. Since then, the Financial Services and the Treasury Bureau and the Securities and Futures Commission have opened further discussions on expanding licensing regimes for crypto dealing, advisory, and asset management activities.

Legal observers say the proposals would significantly broaden the regulatory net. Firms currently operating outside the Type 9 framework — including managers running portfolios fully invested in digital assets — would also be required to obtain a virtual asset management license, reshaping compliance expectations across the sector.

Beyond licensing, the HKSFPA also took issue with proposed custody rules that would require virtual asset managers to hold client assets exclusively with SFC-licensed custodians. The group warned this could be unworkable for private equity and venture capital funds investing in early-stage tokens not yet supported by local custodians, potentially sidelining Hong Kong-based Web3-focused VC strategies.

At the same time, the association welcomed discussions around allowing self-custody and the use of qualified offshore custodians for professional investors, calling these options more aligned with market realities.

The debate unfolds as Hong Kong intensifies its push to become a global crypto hub, rolling out new licensing frameworks for virtual asset trading platforms and stablecoin issuers — even as industry participants urge regulators to balance ambition with flexibility.