Hong Kong Securities and Futures Professionals Association has formally raised concerns over proposed crypto licensing rules, warning that a “hard start” without transitional arrangements could disrupt compliant firms.
The response, issued in January 2026, argues that requiring immediate compliance before licenses are approved may force businesses to pause operations while applications are reviewed.
Objections to Removing the De Minimis Threshold
A central point of contention is the proposal to eliminate the existing 10% “de minimis” threshold. Under current rules, asset managers holding a Type 9 license can allocate limited exposure to crypto without seeking an additional license.
The association cautions that removing this threshold would impose full licensing requirements even for minimal allocations, such as 1%, creating an all-or-nothing framework that could deter traditional managers from engaging with digital assets.
Calls for a Transitional Grace Period
Industry representatives are also pushing back against the absence of a transitional or “deeming” arrangement. Without a grace period, firms already investing in compliance could be compelled to halt crypto-related activities while awaiting regulatory approval. The association is advocating for a six- to twelve-month transition window to avoid operational disruption and to allow businesses to align processes with the new regime.
Custody Rules Seen as Impractical for Private Markets
Proposed custody mandates have drawn additional criticism. Requirements to use only custodians licensed by the Securities and Futures Commission are viewed as impractical for private equity and venture capital funds. These vehicles often invest in early-stage tokens that are not yet supported by local custodians, potentially restricting legitimate investment strategies despite compliance intentions.
Regulatory Roadmap Moves Forward
Despite the pushback, regulators are advancing a unified licensing framework. The SFC and the Financial Services and the Treasury Bureau plan to introduce legislation to the Legislative Council in 2026. Consultations on virtual asset advisory and management rules are open to public comment until February 6, 2026, while other initiatives, such as stablecoin licensing launched in August 2025 and Basel-aligned crypto rules effective January 1, 2026, are already progressing.
Competitive Pressures Shape the Debate
The industry’s response comes as Hong Kong seeks to maintain competitiveness against regional hubs like Singapore and Dubai. While stakeholders broadly support stronger oversight, they warn that rigid requirements and potential licensing backlogs risk penalizing firms attempting to comply. The debate highlights a balance regulators must strike between safeguarding markets and preserving Hong Kong’s appeal as a destination for digital asset activity.
