Hong Kong Advances Virtual Asset Licensing Legislation Following Public Consultation

Executive Summary

Hong Kong's Financial Services and the Treasury Bureau (FSTB) has completed its public consultation on legislative proposals for virtual asset trading and custody services, reviewing over 80 submissions. This initiative underscores the region's commitment to establishing a comprehensive regulatory framework, with legislation anticipated to be presented to the Legislative Council by the first half of 2026. The move signals Hong Kong's strategic intent to foster a regulated yet innovative virtual asset ecosystem, aiming to enhance investor protection and solidify its position as a leading digital asset hub in Asia.

The Event in Detail

The consultation on licensing regimes for virtual asset (VA) dealing and VA custody services concluded on August 29, 2025. This process involved the Financial Services and the Treasury Bureau (FSTB) and the Securities and Futures Commission (SFC), who received more than 80 opinions from various stakeholders. The comprehensive feedback is currently under analysis, paving the way for the drafting of new legislation. The proposed laws are expected to be submitted to the Hong Kong Legislative Council by mid-2026.

These new regimes are designed to expand Hong Kong's existing regulatory oversight, which currently covers VA trading platforms (VATPs) and stablecoin issuers. The SFC is slated to set regulatory requirements for licensed entities, while the Hong Kong Monetary Authority (HKMA) will serve as the frontline regulator for banks and Stored Value Facility (SVF) licensees offering these services. The scope of the proposed regulations will cover spot trading, over-the-counter (OTC) services, and VA custody, with an extraterritorial application to activities targeting Hong Kong investors.

The HKMA has separately confirmed that, effective January 1, 2026, new bank capital rules for crypto assets, based on Basel Committee on Banking Supervision standards, will be fully implemented. These rules impose a maximum risk weight of 1250% for crypto exposures on permissionless public blockchains, requiring banks to hold capital equivalent to the full value of these assets. However, crypto assets held on behalf of clients do not generally trigger capital requirements if segregated from the bank's balance sheet, encouraging custodial services.

Market Implications

The advancement of these regulatory frameworks has significant implications for Hong Kong's virtual asset market and its global standing. The clear and unified licensing framework, once enacted, is expected to attract more legitimate businesses and institutional investors seeking regulatory clarity. This move solidifies Hong Kong's strategy to become a leading regulated crypto hub in Asia, balancing innovation with robust investor protection.

For existing market participants, the legislation will necessitate a thorough assessment of their current operations to ensure compliance with the new requirements. The government has indicated that arrangements will be in place to facilitate the transition for these entities. The implementation of Basel standards by the HKMA further underscores a commitment to financial stability, compelling traditional financial institutions engaging with digital assets to maintain sufficient capital against potential risks. This dual approach of comprehensive licensing and stringent capital requirements aims to foster a sustainable and secure Web3 ecosystem within the region.

Broader Context

This regulatory push aligns with Hong Kong's broader "regulated yet innovation-friendly" approach to digital assets, articulated in the FSTB and SFC's Policy Statement 2.0 and the SFC's "A-S-P-I-Re" Roadmap. The "LEAP" framework guiding Hong Kong's roadmap to be a VA hub emphasizes legal and regulatory streamlining.

Beyond VA dealing and custody, Hong Kong has already established a licensing regime for VA exchanges and trading platforms under the SFC. Furthermore, the Stablecoin Ordinance (Cap. 656), effective August 2025, introduces a comprehensive regulatory framework for fiat-backed stablecoins, requiring an HKMA license for issuers and marketers. These stablecoins must be fully backed by high-quality, liquid assets, segregated from operational funds, and require a minimum of HKD25 million paid-up capital. Hong Kong also maintains a 0% capital gains tax, enhancing its attractiveness to institutional players. Non-compliance with the evolving regulatory landscape carries severe penalties, including significant fines, imprisonment, and market bans.