Hong Kong's cryptocurrency management regulation proposal to abolish de minimis sparks ripples in the industry

As regulatory authorities in Hong Kong advance proposals for a new digital asset management framework, concerns are being raised by industry groups. The Hong Kong Securities and Futures Professionals Association (HKSFPA) has submitted a formal rebuttal to the regulators, warning that several of the proposed restrictions could hinder market growth.

Contradictions Between Current Rules and New Proposals — Background of the Removal of the Deminimis Limit

HKSFPA’s primary concern is the proposed abolition of the so-called “Deminimis” arrangement. Under the current regulatory environment, institutions holding a Type 9 license (asset management) are permitted to allocate up to 10% of their operational fund assets to cryptocurrencies, as long as they fulfill reporting obligations to the regulators. This Deminimis cap has kept the barrier to entry relatively low for initial, experimental participation.

However, the new proposal aims to eliminate this cap and requires full virtual asset management licenses even for allocations as small as 1% to Bitcoin. HKSFPA points out that this “all-or-nothing” regulatory approach could become a barrier to market entry. Despite the limited risk exposure, significant compliance costs are expected, which may particularly deter traditional asset management firms from entering the crypto sector.

Stricter Custody Requirements as a Barrier to Market Entry

Another key issue is the custody (asset safekeeping) requirements. The new proposal indicates a strict policy mandating the use of custodians licensed by the Securities and Futures Commission (SFC) for virtual asset managers when holding assets.

HKSFPA argues that this requirement is especially inappropriate for early-stage token investments and Web3 venture capital activities. If implemented, it could effectively restrict local Hong Kong institutions from engaging in these areas, potentially reducing the overall competitiveness of the industry.

HKSFPA’s “Self-Custody and Overseas Custodian” Compromise

Meanwhile, the alternative supported by HKSFPA is a more flexible approach. They advocate allowing self-custody when providing services to professional investors, along with the option to use qualified overseas custodians. By offering multiple options, they believe this approach can open pathways for early-stage projects while maintaining appropriate risk management.

Regulatory Framework in Progress

According to reports, these regulatory proposals are currently in the development stage. Hong Kong authorities have already published a consultation outline regarding the related framework and are conducting new consultations on licensing systems for cryptocurrency trading, advisory services, and asset management. How much industry feedback, such as from HKSFPA, will influence the regulatory design is expected to be a key factor in the future development of Hong Kong’s crypto asset market.