Hong Kong SFC Strengthens Crypto Custody Rules Amid Rising Cyber Threats

Hong Kong’s Securities and Futures Commission (SFC) has introduced a comprehensive set of stricter custody regulations for licensed virtual asset trading platforms (VATPs) to enhance investor protection and reinforce the region’s digital asset infrastructure. The new measures mandate enhanced security protocols for storing client assets, with a particular focus on cold wallets. These include the use of certified hardware security modules, the restriction of withdrawals to pre-approved addresses, and the establishment of a 24/7 Security Operations Centre (SOC) to monitor systems and networks continuously [2]. Private keys must now be generated and stored offline in air-gapped environments, with access controlled through multi-factor authentication [3]. Additionally, platforms are prohibited from using smart contracts in cold wallet implementations to mitigate potential vulnerabilities [4].

The regulatory shift comes in response to a surge in global crypto thefts and cybersecurity lapses identified during a recent SFC review of local platforms. In the first half of 2025 alone, over $3 billion was lost to hacking incidents, with threats evolving at an alarming speed [5]. The SFC found that many VATPs had weaknesses in transaction verification, access controls, and reliance on third-party wallet solutions [6]. These findings underscore the urgency of the new standards, which aim to close existing loopholes and align with international best practices [7].

The updated standards are part of the SFC’s broader “ASPIRe” roadmap to expand market access while reinforcing structural safeguards and investor confidence [8]. By setting a high bar for custody and cybersecurity, the regulator is positioning Hong Kong as a credible and secure hub for digital asset innovation [9]. However, the new rules may increase operational costs for smaller platforms that rely on third-party custodians, potentially creating a challenge for market competition [10].

Industry analysts suggest that these changes will likely bolster institutional confidence in the Hong Kong digital asset market, addressing long-standing concerns about security and governance [11]. While compliance may be resource-intensive, the long-term benefits—such as stronger investor trust and reduced risk of asset loss—are seen as essential for sustainable growth [12]. The SFC has also emphasized that the updated standards will serve as core expectations for virtual asset custodians, fostering a consistent and secure custody framework across the industry [13]. The regulator is now expected to conduct ongoing inspections to ensure full compliance and will likely take enforcement actions against platforms that fail to meet the new requirements [14].

Source:

[1] Yahoo, Hong Kong's SFC Orders Tighter Crypto Custody Standards

https://finance.yahoo.com/news/hong-kongs-sfc-orders-tighter-072533658.html

[2] AInvest, Hong Kong tightens crypto custody rules to boost investor

https://www.ainvest.com/news/hong-kong-tightens-crypto-custody-rules-boost-investor-trust-2508/

[3] Coinspeaker, Hong Kong's SFC to Tighten Crypto Custody Rule for

https://www.coinspeaker.com/sfc-tighten-crypto-custody-rule-exchanges/

[4] Holder.io, Hong Kong SFC Outlines Stricter Custody Expectations

https://holder.io/news/hong-kong-sfc-strict-custody-crypto/

[5] Bitget, SFC Unveils Robust New Standards for Enhanced Security

https://www.bitget.com/news/detail/12560604913660

[6] Intellectia, Hong Kong SFC Issues Stricter Custody Standards for

https://intellectia.ai/news/crypto/hong-kong-sfc-issues-stricter-custody-standards-for-crypto-platforms

[7] Blockonomi, Tough New SFC Custody Rules Hit Hong Kong Crypto

https://blockonomi.com/tough-new-sfc-custody-rules-hit-hong-kong-crypto-exchanges/

[8] Coin, Hong Kong Tightens Crypto Cold Wallet Custody Rules

https://www.coininsider.com/news/2025/08/hong-kong-tightens-crypto-cold-wallet-custody-rules/

[9] Blockport, Hong Kong Raises Bar On Virtual Asset Custody

https://blockport.io/crypto-market-news/hong-kong-raises-bar-virtual-asset-custody-licensed-platforms/

[10] IcoHolder, Hong Kong's SFC Imposes Stricter Custody Rules

https://icoholder.com/en/news/hong-kongs-sfc-imposes-stricter-custody-rules-for-crypto-exchanges-after-global-breaches

[11] AInvest, Hong Kong tightens crypto custody rules to boost investor

[12] Coinspeaker, Hong Kong's SFC to Tighten Crypto Custody Rule for

[13] Blockonomi, Tough New SFC Custody Rules Hit Hong Kong Crypto

[14] Blockport, Hong Kong Raises Bar On Virtual Asset Custody