Hong Kong Treasury Bureau and Securities Regulatory Commission: Virtual asset trading and custodian services are expected to be included in the regulatory framework

Zhitong Finance App learned that on December 24, the Hong Kong Financial Services and Treasury (Treasury Bureau) and the Securities and Futures Commission (SFC) jointly issued a consultation summary on legislative proposals to establish a licensing system for virtual asset trading and custodian service providers. The Hong Kong Treasury Bureau and the Securities Regulatory Commission are today simultaneously conducting further public consultations for a period of one month on the establishment of a separate licensing system for service providers to provide advice on virtual assets and virtual asset management service providers.

The two-month public consultation was completed in August of this year. During that time, 101 and 93 submissions were received on the proposed licensing system for virtual asset trading service providers and virtual asset custodian service providers, respectively, from market participants, industry organizations, chambers of commerce, and professional groups.

Most of the respondents clearly stated that they support expanding the scope of supervision to include virtual asset trading and custodian services after the virtual asset trading platform licensing system is implemented in June 2023. They believe this is a key step in promoting the steady and sustainable development of Hong Kong's digital asset (Note) ecosystem. Furthermore, respondents generally supported the overall direction of the proposed regulatory requirements and implementation arrangements, while recommending optimization and seeking clarification in certain areas.

The proposed licensing system for virtual asset trading service providers will be essentially consistent with the Class 1 (securities trading) regulated activity applicable to traditional securities trading activities under the Securities and Futures Ordinance (Chapter 571). As for virtual asset escrow service providers, the proposed licensing system will focus on managing the risks associated with storing clients' virtual asset private keys in Hong Kong to address the core risks of virtual asset escrow and enhance the security of clients' assets.

The Secretary for Treasury of Hong Kong, Mr Hui Ching-yu said, “We are proposing that the establishment of a licensing system for virtual asset transactions and custodian service providers is an important step in improving the legal framework for digital assets. The proposed licensing system strikes a steady balance between promoting market development, managing risk and protecting investors, and helps achieve our vision of building a trustworthy and sustainable digital asset ecosystem, thus making Hong Kong a global center for digital asset innovation.”

Hong Kong Securities Regulatory Commission Chief Executive Leung Fung-yee said, “We have made significant progress in establishing a virtual asset regulatory framework to ensure that Hong Kong continues to be a global leader in the development of the digital asset market by building a credible, competitive and sustainable ecosystem. Our unwavering commitment to responsible innovation is laying the foundation for a dynamic and resilient ecosystem, which will greatly benefit the long-term development of Hong Kong's financial market and overall economy.”

Meanwhile, in response to comments received from the consultation, the Hong Kong Treasury Bureau and the Securities Regulatory Commission today initiated further public consultation on the establishment of a separate licensing system for service providers to provide advice on virtual assets and virtual asset management service providers.

It was originally proposed to include related virtual asset activities under the licensing system of virtual asset trading service providers. The revised regulatory plan will be different from the original proposal. Instead, it will be modeled after the regulatory system for similar services in the traditional securities market. It will be able to clarify the scope of regulated activities covered by different virtual asset licensing systems for market participants. Further consultations will last for one month until January 23, 2026.