Hong Kong’s financial regulators have unveiled a groundbreaking expansion of the city’s digital asset regulatory framework, proposing comprehensive licensing requirements for virtual asset dealers and custodians as part of a broader strategy to establish the territory as a leading global hub for digital assets.
The Financial Services and Treasury Bureau (FSTB) and the Securities and Futures Commission (SFC) released detailed consultation papers on July 1, 2025, outlining plans to extend regulatory oversight beyond the existing virtual asset trading platform regime to cover over-the-counter dealers and custodial service providers.
A Comprehensive Regulatory Expansion
The proposed regulatory expansion represents Hong Kong’s most significant digital asset policy development since the implementation of the virtual asset trading platform regulations. Under the new framework, any entity engaging in virtual asset dealing or providing custodian services would require mandatory licensing from the SFC, subject to rigorous fit-and-proper requirements.
This expansion addresses a significant regulatory gap in Hong Kong’s current framework, which primarily focuses on licensed virtual asset trading platforms while leaving standalone dealing and custodial activities largely unregulated. The new proposals aim to create a unified regulatory environment that covers the entire spectrum of virtual asset services.
Key Features of the Proposed Framework
The consultation papers outline several critical components of the expanded regulatory regime:
Mandatory Licensing for VA Dealers: All intermediaries involved in virtual asset transactions, including over-the-counter trading, brokerage services, and advisory activities, would require SFC licensing regardless of whether conducted through physical outlets or digital platforms.
Comprehensive Custodian Regulation: Providers of virtual asset custodian services, including those managing private keys and digital asset storage, would also fall under the licensing regime, addressing the current lack of oversight for third-party custodians.
Expanded Dealing Definition: The regulatory definition of “dealing” would encompass a wide range of activities beyond traditional spot trading, including brokerage, advisory services, and various forms of virtual asset intermediation.
Enhanced Flexibility: Licensed VA dealers would be permitted to execute trades on non-SFC-licensed overseas exchanges, providing greater operational flexibility while maintaining regulatory oversight.
The LEAP Framework: Strategic Vision for Digital Assets
Today’s regulatory expansion is part of Hong Kong’s broader “LEAP” framework, which focuses on four key strategic priorities:
Legal and regulatory streamlining to create a more efficient compliance environment for digital asset businesses.
Expanding tokenized products and services to foster innovation in financial technology.
Advancing use cases for digital assets across both private and public sectors.
People development to build talent capacity in the digital asset ecosystem.
The LEAP framework reflects Hong Kong’s commitment to balancing innovation with investor protection, positioning the city as a competitive global hub for digital asset businesses while maintaining robust regulatory standards.
Stablecoin Regulatory Implementation
Alongside the expansion of dealer and custodian regulations, Hong Kong is simultaneously implementing its stablecoin regulatory regime. The Hong Kong Monetary Authority (HKMA) is preparing to launch the Stablecoins Ordinance (SO) on August 1, 2025, following extensive industry consultation that concluded on June 30, 2025.
The stablecoin regulatory framework emphasizes robust reserve management and risk controls, ensuring that stablecoins maintain their peg and remain trustworthy for both domestic and international use. The HKMA has indicated support for flexible issuance arrangements, including multi-jurisdictional operations, while maintaining strict oversight of reserve asset management.
Industry Response and Market Impact
The proposed regulatory expansion has been broadly welcomed by industry participants, who view it as providing much-needed clarity and reducing regulatory arbitrage opportunities. Major financial institutions and digital asset companies have expressed support for the comprehensive approach, which levels the playing field between different types of virtual asset service providers.
“Hong Kong’s proposed regulatory framework represents a significant step forward for the digital asset industry,” said Jennifer Wong, Head of Digital Assets at a major Asian financial institution. “The comprehensive licensing approach creates clear rules of the road while maintaining the flexibility needed for innovation in this rapidly evolving sector.”
Market analysts predict that the regulatory clarity will attract significant international investment to Hong Kong’s digital asset ecosystem, particularly from institutional investors seeking regulatory certainty for their virtual asset operations.
Timeline and Implementation Process
The consultation process, which runs through August 29, 2025, allows industry stakeholders to provide feedback on the proposed regulations. The FSTB and SFC have indicated that they will carefully consider all submissions before finalizing the regulatory framework.
Key implementation milestones include:
- July-August 2025: Consultation period for VA dealer and custodian regulations
- August 1, 2025: Implementation of Stablecoins Ordinance
- Late 2025: Expected finalization of VA dealer and custodian regulatory framework
- Early 2026: Anticipated commencement of licensing applications under expanded regime
Competitive Positioning in Global Markets
Today’s regulatory expansion strengthens Hong Kong’s position in the increasingly competitive global digital asset market. While other major financial centers, including Singapore and Dubai, have also developed comprehensive digital asset frameworks, Hong Kong’s approach is distinguished by its integration of traditional financial regulatory principles with emerging digital asset innovations.
The expansion of regulatory oversight to cover dealers and custodians creates a comprehensive ecosystem that addresses the full spectrum of virtual asset activities, potentially making Hong Kong more attractive to institutional investors and major financial institutions seeking regulatory certainty.
Looking Ahead: Market Transformation
The comprehensive regulatory expansion announced today signals Hong Kong’s determination to become a leading global hub for digital assets while maintaining the highest standards of investor protection and financial stability. As the regulatory framework takes shape over the coming months, the digital asset ecosystem in Hong Kong is poised for significant growth and institutionalization.
Industry observers expect that the clarity provided by the expanded regulatory framework will accelerate the development of sophisticated digital asset products and services, potentially including tokenized securities, digital asset funds, and institutional-grade custody solutions. The framework also creates opportunities for traditional financial institutions to expand their digital asset offerings under clear regulatory guidelines.
This article reflects information available as of July 5, 2025, and does not include subsequent regulatory developments or policy changes.