Hong Kong industry body opposes stricter crypto licensing rules for asset managers

Hong Kong’s ambitious drive to establish itself as a premier global virtual asset hub is facing opposition from within the financial sector, following the proposal of tighter licensing requirements by the Securities and Futures Commission (SFC).

A major industry body representing the alternative investment sector, which includes numerous fund managers handling digital assets, has formally voiced strong disapproval of the proposed enhancements to the regulatory framework for Type 9 (asset management) license holders engaging in virtual asset activities. The opposition centers primarily on the perceived excessive burdens and operational complexities the rules would impose.

The SFC’s consultation proposed significant amendments, including heightened capital requirements, mandatory segregation of client assets, and significantly increased demands for insurance coverage pertaining to virtual asset risks. The regulators argue these measures are necessary to bolster investor protection and ensure financial stability as the market matures and more traditional financial institutions enter the crypto space.

However, the industry body contends that these stricter rules disproportionately affect smaller and mid-sized fund managers, raising compliance costs to prohibitive levels. They argue that applying conventional securities custody standards directly onto nascent virtual asset management activities stifles innovation and creates an uneven playing field compared to rival jurisdictions like Singapore or Dubai, which often employ a more risk-based, phased approach.

The body has called upon the SFC to adopt a more pragmatic framework that aligns with existing international best practices while maintaining Hong Kong’s competitive edge. They suggest a tiered approach where requirements are scaled based on the size of assets under management (AUM) and the types of clients served, rather than a blanket application of the most stringent measures across all regulated virtual asset fund managers.

Source: Hong Kong industry body opposes stricter crypto licensing rules for asset managers