Hong Kong Tightens Crypto Oversight with Dealer, Custodian Licensing Regime

Hong Kong is taking a decisive step to enhance oversight of its digital asset sector by introducing new licensing rules for virtual asset dealers and custodians. The Financial Services & the Treasury Bureau and the Securities and Futures Commission confirmed the decision on December 24, 2025, after receiving more than 190 responses from the public. These rules aim to bring more participants into the regulatory fold, extending supervision from trading platforms to entities handling and storing virtual assets.

The licensing framework for dealers mirrors the regulations already in place for traditional securities markets, requiring firms to meet strict standards before operating. Custodians, responsible for safeguarding clients' digital keys, will face rules centered on security and asset protection. The goal is to reduce the risk of theft, misuse, or loss of digital assets held for clients.

In addition to dealer and custodian licensing, Hong Kong regulators launched a new public consultation on whether to regulate virtual asset advisory and management services. This move seeks to bring these activities under the same anti-money laundering and counter-terrorism financing standards as traditional financial services. Feedback on the proposal will be accepted until January 23, 2026, with the government aiming to introduce the related bill to the Legislative Council in 2026.

Regulatory Framework Expands

The new licensing regime closes existing gaps in Hong Kong's digital asset oversight by bringing over-the-counter trading, brokerage services, and custody under a unified regulatory framework. This expansion is part of the SFC's ASPIRe roadmap, a broader initiative to build a comprehensive digital asset regime. According to regulators, the proposal received broad market support, with stakeholders generally endorsing the direction but requesting clearer operational explanations.

Virtual asset dealers will be required to obtain licenses, with the scope of activities covering virtual asset-to-fiat and virtual asset-to-virtual asset conversions, block trading, and advisory services. These rules apply regardless of whether the services are offered online or through physical outlets. For custodians, the focus is on robust key management, asset segregation, and cybersecurity, ensuring that client assets are held safely and separately from the custodian's own funds.

Investor Protection and Market Confidence

Christopher Hui, Secretary for Financial Services and the Treasury, emphasized that the new rules aim to strengthen Hong Kong's legal framework and support sustainable market growth. "The proposed establishment of licensing regimes for virtual asset dealing and custodian service providers marks a significant step in enhancing our legal framework for digital assets," he said. By aligning crypto-related activities with traditional financial regulations, the city hopes to attract more institutional investors and bolster confidence in its digital asset ecosystem.

Julia Leung, CEO of the SFC, reiterated that the development of Hong Kong's crypto regulatory framework is critical for maintaining its position in global digital asset markets. "Fostering a trusted, competitive, and sustainable ecosystem is essential," she said. The city's favorable tax environment and role as a financial gateway between mainland China and international markets position it well to become a leading crypto hub.

Future Steps and Market Implications

The government's next steps include finalizing the dealer and custodian licensing rules and advancing them through the Legislative Council. Firms are encouraged to engage with the SFC early to prepare for compliance. Meanwhile, the parallel consultation on advisory and management services will shape how these firms will be integrated into existing regulatory frameworks. This could result in additional compliance costs for crypto companies but will also reduce regulatory uncertainty, especially for institutional players.

The new rules also reflect Hong Kong's broader ambitions in digital asset innovation, including tokenization initiatives and pilot projects involving blockchain-based finance. These efforts are part of a larger strategy to position the city as a global leader in digital assets, leveraging its existing financial infrastructure and regulatory expertise.

Hong Kong's approach is one of formal authorization and close supervision, favoring a structured environment over lighter-touch experimentation. By ensuring that all major aspects of crypto activity-trading, custody, issuance, advice, and management-are governed by a single regulatory framework, the city aims to create a stable and trustworthy ecosystem for both domestic and international participants.