Hong Kong’s securities industry is warning regulators not to squeeze too hard on crypto exposure just as the city is trying to attract more mainstream money into digital assets.
In a submission sent to authorities this week, the Hong Kong Securities and Futures Professionals Association pushed back against a proposal that would tighten the rules for traditional asset managers dipping their toes into crypto. The group argues that removing existing flexibility could end up driving cautious fund managers away, rather than encouraging broader participation.
At the centre of the debate is a long-standing exemption for Type 9 licence holders — the standard approval most portfolio managers need to run client money in Hong Kong. Under current rules, these managers can allocate up to 10% of a fund’s assets to cryptocurrencies without applying for a separate virtual asset management licence, provided they notify the Securities and Futures Commission (SFC).
That safety valve is now at risk.
Regulators are considering scrapping the 10% threshold entirely, a move the industry group says would turn even the smallest crypto allocation into a full licensing trigger. In practice, that would force firms into an “all-or-nothing” choice: either stay completely out of digital assets or shoulder the cost and complexity of an additional licence.
The association called that approach disproportionate, warning it would pile on compliance burdens even when crypto exposure remains minimal. Instead, it urged regulators to keep a clearly defined, risk-based carve-out, where managers below a set threshold would only need to notify the regulator rather than enter the full virtual asset regime.
The pushback comes as Hong Kong continues to widen its crypto rulebook. In December, the government and the SFC wrapped up consultations on licensing for virtual asset trading services, and they have since launched new consultations covering advisory and asset management activities tied to digital assets.
Custody rules are another flashpoint. The association also criticised proposals that would require crypto managers to use only SFC-licensed custodians, arguing the rule could be impractical for private equity and venture funds investing in early-stage tokens that local custodians may not yet support.
Regulators say the expanding licensing framework is designed to bring more crypto activity onshore while raising standards as institutional interest grows. Officials have also stressed the need for rules that integrate crypto exposure into existing financial regulations, rather than leaving it in a grey area.
What’s at stake is how easily traditional finance can experiment. Keeping the 10% carve-out lowers the barrier for stock and bond managers to add a small slice of Bitcoin or other tokens. Removing it, by contrast, would require a full licence even for limited exposure — a higher fixed cost before firms know whether clients actually want it.
For now, the rules are not final. Regulators are still gathering feedback, with legislation expected to follow in 2026. Until then, the debate highlights the tightrope Hong Kong is walking: tightening oversight without shutting the door on the very institutions it hopes will help grow its digital-asset market.
