Managing Cryptocurrencies in Hong Kong: Do You Need a Licence Uplift?
As virtual assets (VAs) — including cryptocurrencies such as Bitcoin (“BTC”) and Ethereum (“ETH”) — become more integrated into traditional financial services, Hong Kong regulators have been updating their guidance on how intermediaries should approach VA-related business. Whether you’re managing portfolios or distributing or dealing in products, you may need to uplift your licence or comply with additional licensing conditions.
Who Needs a Licence Uplift?
If you’re licensed by the Securities and Futures Commission (“SFC”) or registered with the Hong Kong Monetary Authority (“HKMA”) and plan to engage in VA-related activities, a licence uplift or additional licensing conditions may be required. This applies especially to:
- Type 9 licence holders managing portfolios with a stated investment objective to invest in VAs, or where VA exposure reaches or exceeds 10% of gross asset value (GAV) of the portfolio (together, the “de minimis threshold”).
- Type 1, 4, and 7 licence holders involved in distributing VA products, advising on VA investments/securities, or operating VA trading platforms.
Why Should You Consider a Licence Uplift for Cryptocurrencies?
Cryptocurrencies carry distinct risks compared to traditional investments. Their high price volatility means your portfolio of virtual assets could quickly exceed the 10% exposure threshold allowed within any uplift, even if it started below it. An uplifted licence helps ensure you remain compliant in such cases.
Other risks include cybersecurity threats, storage challenges, legal uncertainties, and exposure to unregulated platforms. These factors require careful oversight and may warrant a licence uplift with tailored regulatory safeguards.
Which Licence Types Are Affected?
The following licences may be uplifted or subject to VA-specific conditions:
- Type 1 – uplift your licence if you wish to introduce clients to SFC-licensed virtual asset trading platforms or provide VA dealing services under an omnibus account.
- Type 4 – uplift your licence if you will provide advice on VA products.
- Type 7 – uplift your licence if you wish to provide VA services.
- Type 9 – uplift your licence if you want to manage portfolios exceeding the de minimis threshold.
The SFC continues to apply a “same business, same risks, same rules” approach, meaning VA activities are regulated similarly to traditional financial products.
What Are the Key Requirements for Uplift?
The key process and requirements vary by licence type and activity. In short, for some most relevant licences, you need to, among other requirements:
- Type 1 (Dealing in Securities):
- meet fit and proper criteria, maintain HK$5 million paid-up capital, appoint two responsible officers (one based in Hong Kong), and undergo external system review.
- only introduce clients to SFC-licensed platforms, must not hold client assets or communicate direct offers to deal, and must have a written client agreement
- if dealing via an omnibus account, must use an SFC-licensed platform and comply with conditions on custody, client knowledge, risk profiling, disclosure, and reporting
- engage an external assessor to review systems and controls
- Type 4 (Advising on Securities):
- assess clients’ understanding of virtual assets and ensure suitability through risk profiling and written agreements.
- recommend only highly liquid VAs listed in at least two independent indices, with one meeting IOSCO standards
- VA products advised to retail clients must be tradable on SFC-licensed platforms
- Type 9 (Asset Management):
- comply with terms on custody, valuation, disclosure, cybersecurity, risk profiling and monitoring
- disclose key risks to non-institutional investors, including price volatility and potential price manipulation on trading platforms
Considering Applying?
Given the complexity and evolving nature of virtual asset regulation—including the treatment of tokenised securities—it is essential to seek professional legal advice before engaging in any VA-related activities.
As a leading law firm in virtual assets, we are well-positioned to assist with licensing reviews, regulatory notifications, and compliance planning tailored to your business model.
Contact us today for a discussion of how we can help you gain a competitive advantage in the fast-evolving virtual assets industry.