On 19 February 2025, the Securities and Futures Commission (“SFC”) of Hong Kong released its “A-S-P-I-Re” regulatory roadmap, a five-pillar regulatory framework designed to solidify the city’s position as a global hub for virtual assets (“VAs”) while balancing innovation with investor protection. For virtual asset trading platforms (“VATPs”) and investors, this roadmap signals both opportunities and challenges in navigating Hong Kong’s evolving digital asset landscape. Below, we analyze the key components of the ASPIRe Roadmap and its implications for stakeholders.
- Pillar A (Access) – Streamline market entry through regulatory clarity
The SFC aims to expand market access by streamlining market entry through clearer licensing frameworks for over-the-counter (“OTC”) trading and custody services, while attracting global platforms and liquidity providers. By simplifying entry for compliant virtual asset service providers (“VASPs”), Hong Kong seeks to deepen integration with global liquidity pools and enhance investor opportunities.
Initiative 1: Establish licensing regimes for OTC trading and custody services
- Virtual asset OTC trading: The SFC will support the introduction of a licensing framework for OTC trading, aligning requirements with the “same business, same risks, same rules” principle to ensure the parity between OTC operators and VATPs.
- Virtual asset custody services: The SFC plans to develop a licensing framework for custodians, mirroring standards applied to traditional financial custodians, including capital adequacy, cybersecurity, and asset segregation. The legislation is anticipated to be completed by the end of 2025.
Initiative 2: Attract global platforms, order flows and liquidity providers (“LPs”)
- Integration of global platforms: The SFC encourages international virtual asset platforms to establish operations in Hong Kong, leveraging their global order books under proper compliance standards. This will allow local investors to access global markets and attract institutional liquidity, creating a deeper and more liquid market.
- Participation of LPs: The SFC will streamline the onboarding process for institutional-grade LPs by clarifying regulatory and financial expectations. This will reduce barriers, enhance liquidity, lower transaction costs, narrow bid-ask spreads, and stimulate product innovation.
- Pillar S (Safeguards) – Optimising compliance burdens without compromising security
The Safeguards pillar aims to create a secure and competitive virtual asset ecosystem by aligning compliance requirements with global standards, adopting a flexible and outcome-driven regulatory approach, and providing clear guidance to market participants.
Initiative 3: Explore adopting a dynamic approach to custody technologies and storage ratios
- Emerging custody technologies: The SFC recognises the rapid evolution of custody technologies and aims to adopt a technology-neutral, outcome-based regulatory approach. This will allow VASPs to implement innovative solutions, provided they ensure robust asset protection and a secure, auditable control environment.
- Mandatory hot/cold storage ratios: The SFC acknowledges that strict cold storage mandates can lead to operational challenges and increased costs for VASPs. The SFC will adopt a holistic security approach that balances cold storage with safeguards like real-time monitoring, third-party audits, and compensation-backed hot wallets, allowing VASPs to customize storage strategies while maintaining robust asset protection and market agility.
Initiative 4: Enhance insurance and compensation frameworks
- Insurance and compensation arrangements are crucial for safety but should be tailored to individual firms’ operations and investor profiles. The SFC will work with stakeholders to align its insurance and compensation frameworks with global practices.
Initiative 5: Clarify investor onboarding and product categorization
- Investor onboarding: Guidance for investor onboarding under the SFC’s existing regulatory regime should be adopted for VAs. The SFC will also consider issuing guidance to clarify these processes, aiming to create a compliant market environment that fosters strong investor confidence and ensures access to appropriate products.
- Product categorization: A SFC-endorsed “look-through” product classification framework can ensure regulatory certainty by basing the treatment of digital assets on the nature of the actual activity conducted and the underlying asset, not its digital form.
- Pillar P (Products) – Expand product offerings and services based on investor categorization
Pillar P aims to expand the range of virtual asset products and services in Hong Kong’s regulated market, tailored to meet diverse investor needs. The SFC seeks to enable risk-appropriate investment tools, fostering market development while implementing robust safeguards to protect retail investors.
Initiative 6: Explore regulatory framework for professional investor-exclusive new token listings and virtual asset derivative trading
- New token listings: The SFC plans to expand its regulatory framework to allow the listing of new tokens exclusively for professional investors (“PIs”), based on rigorous due diligence and disclosure requirements. Additionally, the SFC will review existing safeguards for retail offerings to better adapt to the rapidly evolving virtual asset marketplace.
- Virtual asset derivative trading: The SFC plans to introduce virtual asset derivative trading for PIs, emphasizing robust risk management to ensure orderly, transparent, and secure trades. This initiative aims to facilitate efficient risk transfer, enhance liquidity in spot markets, and enable experienced participants to engage in hedging and leveraged strategies.
Initiative 7: Explore virtual asset margin financing requirements aligned with securities market risk management safeguards
- The SFC will align margin financing requirements for VAs with traditional securities market protocols to manage risk and protect both VASPs and investors. This approach will facilitate traditional finance (TradFi)’s entry into the market, promote diversified participation through leverage, and ensure an orderly trading environment.
Initiative 8: Consider allowing staking and borrowing/lending services under clear custody and operational guidelines
- Staking: The SFC plans to introduce staking services within a regulated framework, with technical and custodial safeguards in place. This initiative aims to provide transparent operational processes and mitigate risks, allowing investors to benefit from yield-generation opportunities unique to the virtual asset market.
- Borrowing/lending services: The SFC is considering permitting borrowing and lending activities for PIs, with strict risk management measures in place. This would enhance the utility and liquidity of virtual assets, enabling experienced market participants to diversify their trading strategies and offering investors opportunities for stable returns.
- Pillar I (Infrastructure) – Modernise reporting, surveillance and cross-agency collaboration
This pillar focuses on enhancing the SFC’s market-wide oversight capabilities through new technology tools and infrastructure. The SFC aims to consolidate cross-agency collaboration to monitor and surveil risks and illicit activities effectively.
Initiative 9: Consider solutions for efficient regulatory reporting and deploy advanced surveillance tools to detect illicit activities
- The SFC will explore straight-through reporting of digital asset information and data-driven surveillance tools. This initiative aims to enhance market oversight and build trust in the Hong Kong virtual asset market by ensuring its integrity and resilience.
Initiative 10: Strengthen local cross-agency collaboration and promote cross-border cooperation with global regulators
- The SFC will enhance collaboration and intelligence sharing with local regulators and law enforcement agencies to better identify illicit activities and support asset retrieval. This effort aims to develop a comprehensive risk monitoring and surveillance solution, fostering cross-border cooperation with global regulators.
- Pillar Re (Relationships): Empower investors and industry through education, engagement and transparency
Pillar Re aims to empower investors and industry participants through fact-based information exchanges, fostering an informed community capable of navigating virtual asset complexities and risks. The SFC emphasizes transparency in policymaking to ensure stakeholders can contribute constructively to regulatory developments.
Initiative 11: Consider regulatory framework for financial influencers (Finfluencers) to address new investor engagement channels
- The SFC acknowledges the role of digital channels and Finfluencers in shaping investor perceptions and aims to develop a framework to support responsible Finfluencers. This includes advocating for best practices in communication and engagement, and promoting educational initiatives to help investors make informed decisions about virtual assets.
Initiative 12: Cultivate sustainable communication and talent network
- The SFC will collaborate with industry stakeholders through the Virtual Asset Consultative Panel and global forums to gather insights and feedback, ensuring its regulations reflect market realities and stakeholder concerns. This approach aims to enhance policymaking quality and integrate stakeholder perspectives effectively.
With the SFC’s evolving regulatory approaches towards VAs, and its intention for more rigorous oversight, VA service providers should be prepared for the implementation of new regulatory regimes, such as those for OTC trading and custody services. It is encouraging to see the SFC’s willingness to explore the possibility of customized frameworks for VA industry, and we are confident that Hong Kong will inevitably become the leading crypto hub in the region. Market participants should closely monitor these developments and be ready to adapt their operations and compliance measures accordingly, as ongoing collaboration between the industry and regulators will be crucial in fostering innovation while maintaining appropriate safeguards.
For more information or assistance on cryptocurrency matters, please contact us today.