Hong Kong Securities Industry Opposes Digital Asset Management Regulations Due to Concerns Over Divergence from the Current System

The Hong Kong Securities and Futures Professionals Association (HKSFPA) has voiced objections to the proposed digital asset management framework with regulators. The association formally submitted feedback expressing concerns over several restrictive measures and pointed out the significant impact these could have on the industry compared to the current system. According to Odaily’s report, what HKSFPA finds particularly problematic is the potential complete abolition of the current flexible arrangements.

Industry Opposition to the Removal of Asset Allocation Limits

Under the current regulations, institutions holding a Type 9 license (Asset Management) are permitted to allocate up to 10% of their total fund assets to cryptocurrencies, contingent upon reporting to regulators. This “de minimis” arrangement has provided the industry with a certain degree of flexibility from a risk management perspective.

However, the proposed framework indicates an intention to fully eliminate this cap. Under the new regulations, even a 1% allocation to Bitcoin would require obtaining a full virtual asset management license. HKSFPA argues that this “all-or-nothing” approach is significantly unbalanced, and despite limited risk exposure, companies would face excessive compliance costs.

Such a regulatory shift could discourage traditional asset management firms from entering the digital asset sector, potentially harming the overall diversity and competitiveness of the industry.

Practical Challenges from Stricter Custody Requirements

The proposed framework also includes stringent custody (asset safekeeping) requirements. Specifically, it mandates that virtual asset managers use only custodians licensed by the Securities and Futures Commission (SFC) for asset custody.

HKSFPA criticizes this requirement as overly restrictive, especially for early-stage token investments and growth-phase ventures like Web3 venture capital. Strict custody rules could pose significant barriers for local financial institutions to participate in these emerging areas, potentially hindering the development of Hong Kong’s digital asset ecosystem.

Barriers to Digital Asset Entry and HKSFPA’s Alternative Proposals

The industry group advocates for a more practical, phased approach. HKSFPA supports allowing self-custody only when serving professional investors and permitting the use of qualified overseas custodians in addition to SFC-licensed ones.

Such a flexible framework could make it easier for local institutions to enter the digital asset space, balancing regulation with practical implementation. Hong Kong authorities have already announced an outline for consultation on the related framework and are conducting a new consultation on licensing for crypto trading, advisory, and management services.

HKSFPA’s comments highlight the fundamental challenge of balancing stricter regulation with maintaining a conducive business environment in digital asset management. A constructive dialogue with the industry is expected to shape the final framework.