Hong Kong Crypto Licensing Expands: Dealers and Custodians Face Strict New Mandate

Core Viewpoint - Hong Kong is advancing its crypto regulatory framework by implementing new licensing requirements for virtual asset dealers and custodians, aiming to enhance oversight across the digital asset market [1][2][3]. Group 1: Licensing Requirements - Firms providing virtual asset dealing or custody services in Hong Kong will be mandated to obtain licenses under the new framework [2]. - The licensing will encompass a variety of activities, including virtual asset-to-fiat conversions, brokerage services, and block trading, bringing over-the-counter trading and broker-style services under regulatory oversight for the first time [5][6]. - Dealers will be required to place client assets only with licensed custodians, ensuring a regulated environment for asset management [7]. Group 2: Regulatory Framework and Support - The proposals for the new licensing regime received broad market support and will transition into the legislative phase, contributing to a comprehensive digital asset regime under the SFC's ASPIRe roadmap [4]. - The planned framework for custodians will focus on the safekeeping of client assets, requiring strict segregation of assets and enhanced cybersecurity standards [6]. - Both dealers and custodians will face fit-and-proper requirements, with dealers expected to meet capital requirements of around HK$5 million and custodians facing higher thresholds of HK$10 million in paid-up capital [7]. Group 3: Future Developments - Regulators have initiated further consultations to extend licensing requirements to virtual asset advisory and management service providers, indicating ongoing development in the regulatory landscape [8].