On March 1, 2025, Hong Kong officially launched its comprehensive licensing framework for virtual asset service providers (VASPs), marking a pivotal moment in the region’s journey toward becoming a regulated and trusted hub for digital asset innovation. This new regime, established under the Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Ordinance 2022, mandates that all entities operating virtual asset exchanges in or targeting Hong Kong’s market must obtain a license from the Securities and Futures Commission (SFC). The move aligns with Financial Action Task Force (FATF) standards and reinforces Hong Kong’s commitment to financial integrity and investor protection.
Understanding the Scope of the Licensing Regime
The cornerstone of the new law is the requirement that any individual or company engaging in the business of providing virtual asset services — particularly operating a virtual asset exchange — must be licensed by the SFC. This applies not only to local operators but also to overseas platforms promoting their services to Hong Kong residents.
👉 Discover how to navigate Hong Kong’s new crypto compliance landscape
A "virtual asset" is broadly defined as cryptographically secured digital representations of value that function as a unit of account, store of economic value, or medium of exchange. It includes assets like Bitcoin, altcoins, stablecoins, and governance tokens. However, it excludes central bank digital currencies (CBDCs), traditional securities, futures contracts, stored-value facilities (e.g., e-wallets), and limited-use digital tokens such as loyalty points or in-game currency.
An entity is considered to be operating a virtual asset exchange if it:
- Uses electronic systems to regularly facilitate offers to buy or sell virtual assets that result in binding transactions; or
- Introduces buyers and sellers with the expectation of trade; and
- Directly or indirectly holds customer funds or virtual assets.
This definition excludes purely private trading platforms where no client assets are custodied and actual trades occur off-platform.
Transition Arrangements for Existing Operators
To ensure a smooth transition, existing virtual asset exchanges operating in Hong Kong before March 1, 2025, may continue without a license until February 29, 2026, provided they meet certain conditions. To qualify for this transitional relief, an exchange must submit a full license application to the SFC by November 30, 2025.
If the application remains undecided by February 29, 2026, the operator can continue business under a “deemed licensed” status until a final decision is made — unless the application is withdrawn or rejected. Once rejected or withdrawn, the exchange has three months to wind down operations solely for the purpose of exiting the market. Extensions may be requested in writing during this period.
This grace period offers a critical window for compliant market participants to formalize their operations and gain regulatory approval.
Key Licensing Requirements
Only companies incorporated in Hong Kong or registered overseas companies with a local presence are eligible for licensing. Sole proprietorships, partnerships, and unregistered foreign entities do not qualify.
Appointment of Responsible Officers
Applicants must appoint at least two responsible officers (ROs) who will oversee compliance and day-to-day operations. Specific requirements include:
- At least one RO must be an executive director.
- All executive directors must serve as ROs if there is more than one.
- At least one RO must be ordinarily resident in Hong Kong.
- At least one RO must be immediately available to supervise the VASP business.
Licensed Representatives
Any individual representing the VASP — including ROs — must be approved by the SFC as a licensed representative.
Fit-and-Proper Criteria
All key individuals — including applicants, directors, ROs, licensed representatives, and ultimate owners — must meet fit-and-proper criteria. The SFC evaluates:
- Financial soundness and solvency
- Educational background and professional experience
- History of honesty and integrity
- Criminal records related to fraud, money laundering, or dishonest conduct
- Past regulatory breaches
An ultimate owner is defined as any person who directly or indirectly owns or controls more than 25% of issued shares, voting rights, or management control.
Approved Premises
The SFC must approve any location used to store required records. These premises must be non-residential and suitable for secure document retention.
Ongoing Obligations for Licensed Exchanges
Once licensed, VASPs face stringent regulatory responsibilities designed to protect investors and maintain market integrity.
Anti-Money Laundering Compliance
Licensed exchanges must comply with AML/CFT obligations under Schedule 2 of the ordinance, including:
- Customer due diligence (CDD)
- Ongoing monitoring
- Suspicious transaction reporting
- Record keeping for at least five years
Failure to comply can result in fines up to HK$1 million and imprisonment for two years — or up to seven years if committed fraudulently.
Licensing Conditions
The SFC may impose conditions covering:
- Financial resources and capital adequacy
- Risk management frameworks
- Client asset custody and segregation
- Token listing and trading policies
- Market surveillance and manipulation prevention
- Disclosure and transparency requirements
- Conflict-of-interest mitigation
👉 Learn what it takes to build a compliant crypto exchange in Asia
Restricted Access: Professional Investors Only
Initially, licensed VASPs are only permitted to serve professional investors, defined under the Securities and Futures Ordinance. Retail access is not banned outright but deferred pending further market assessment. The SFC and Financial Services and Treasury Bureau will review this restriction as the ecosystem matures.
Ultimate Owner Approval
Any person intending to become an ultimate owner of a licensed VASP must obtain prior written approval from the SFC. Failure to do so is a criminal offense punishable by a HK$1 million fine, two years’ imprisonment, and an additional daily fine of HK$5,000 for continued non-compliance.
Reporting and Audit Requirements
Licensed operators must:
- Submit an annual return and pay a fee within one month of each licensing anniversary.
- Appoint an auditor within one month of license issuance.
- Submit audited financial statements within four months after each fiscal year-end.
- Notify the SFC promptly of changes in directors, ultimate owners, business addresses, auditors, or licensed representatives.
Enforcement Powers and Penalties
The SFC has broad supervisory authority, including:
- Conducting on-site inspections
- Requesting documents and data
- Investigating suspected violations
- Imposing disciplinary actions such as fines, license suspension, or revocation
Criminal Offenses Include:
| Offense | Maximum Penalty |
|---|---|
| Operating without a license | HK$5 million fine, 7 years’ imprisonment + HK$100,000/day for ongoing breach |
| Fraudulent inducement to invest | HK$1 million fine, 7 years’ imprisonment |
| Fraudulent conduct in virtual asset trading | HK$10 million fine, 10 years’ imprisonment |
| Advertising unlicensed services | HK$50,000 fine, 6 months’ imprisonment |
The SFC can also appoint third-party auditors to investigate suspected breaches and exercise intervention powers when necessary — for example, to safeguard client assets during crises.
Frequently Asked Questions (FAQ)
Q: Does the licensing regime apply to offshore exchanges targeting Hong Kong users?
A: Yes. Any platform actively marketing virtual asset services to Hong Kong residents — even from abroad — must be licensed or face criminal penalties.
Q: Are NFTs covered under this definition of virtual assets?
A: The SFC has not yet clarified whether non-fungible tokens (NFTs) fall under the scope. However, if an NFT functions as an investment vehicle or is traded like a security, it may be subject to regulation.
Q: Can I trade crypto freely as a retail investor in Hong Kong?
A: Not yet. Currently, only professional investors can use licensed exchanges. Retail access may be allowed in the future following regulatory review.
Q: What happens if my exchange fails to get licensed by the deadline?
A: Unlicensed operators must cease all activities targeting Hong Kong. Continued operation risks severe penalties, including imprisonment and substantial fines.
Q: How does this affect crypto innovation in Hong Kong?
A: While introducing compliance burdens, the framework provides legal clarity that encourages institutional participation and fosters long-term growth in Web3 and blockchain sectors.
Q: Is there flexibility in meeting capital requirements?
A: The SFC assesses financial resources on a case-by-case basis. Firms must demonstrate sufficient liquidity and capital buffers to manage risks effectively.
By establishing clear rules and enforcement mechanisms, Hong Kong’s VASP licensing regime enhances transparency, combats illicit finance, and positions the city as a forward-thinking player in the global digital economy. For compliant operators, this opens doors to institutional trust and sustainable growth.