Hong Kong’s Digital Asset Regulatory Landscape: The Current State, What’s Next and How to Prepare

Hong Kong’s approach has consistently advanced, turning policy into mandatory regulation.

Hong Kong’s regulatory framework is moving from foundational rules to expanded oversight and innovation enablement. Here’s what’s on the horizon:

• Expanded VA Dealing Regime (2025)
  Expect broader licensing requirements for OTC brokers, custodians, and firms offering VA-fiat conversions, block trades, and underwriting. Marketing will be restricted to licensed entities only.
• Dedicated VA Custodian License
  Firms safeguarding client assets will face stringent cybersecurity, governance, and independent infrastructure assessments.
• Stablecoin Regulation in Practice
  With the Stablecoins Ordinance now in force, issuers must maintain 100% reserve backing and operate within a closed loop of regulated entities. This opens opportunities for institutional-grade stablecoin products.
• Retail Access Expansion
  The SFC is signalling greater retail participation under strict investor protection measures—creating new distribution channels for compliant platforms.

Regulation isn’t just about compliance—it’s a competitive advantage. Here’s how firms can leverage the new landscape:

• Institutional Trust
  Licensed platforms gain credibility with global investors, enabling partnerships and cross-border flows.
• Product Innovation
  The lifting of track record requirements for certain virtual assets will accelerate tokenization and stablecoin offerings.
• First-Mover Advantage
  Early compliance positions firms to capture market share as retail access and institutional adoption grow.

To thrive in Hong Kong’s regulated digital asset market, firms should:

• Map Your Business Model against SFO, AMLO, and MSO requirements
• Identify Required Licenses (VATP, VA Dealing, Custodian, MSO)
• Invest in Governance & Cybersecurity frameworks
• Implement AML/CFT Infrastructure including on-chain analytics
• Prepare for Stablecoin Integration with HKMA standards
• Engage Regulators Early for clarity and faster approvals

• Underestimating Transition Timelines – Grace periods are short; delays can mean loss of market access.
• Ignoring Retail Investor Rules – Missteps in disclosure and risk safeguards can lead to enforcement actions.
• Weak Custody Controls – Non-compliance with wallet segregation and cold storage requirements is a major risk.

Alongside SFC oversight on virtual asset trading, firms engaged in crypto-fiat conversion or cross-border remittance may fall under the Money Service Operator (MSO) regime, regulated by the Customs and Excise Department (C&ED).

When is an MSO License Required?

• Money changing between fiat and stablecoin/crypto assets
• Remittance services involving transfer of funds or equivalent value

Key MSO Compliance Obligations

• Fit-and-proper management structure
• Comprehensive AML/CFT framework
• Transaction monitoring and reporting systems
• Regular internal reviews and compliance audits

Why It Matters:

This framework complements SFC supervision, ensuring all fiat-linked or cross-border elements of digital finance meet equivalent AML/CFT standards. For firms offering on/off-ramp services, MSO licensing is not optional—it’s essential for legal operation and client trust.

• Tokenization of Real-World Assets – Expect regulatory clarity on tokenized securities and funds.
• Interoperability with Global Markets – Hong Kong’s frameworks may become a model for cross-border VA trading.
• AI-Driven Compliance – Automated transaction monitoring and risk scoring will become standard.

Situation

A leading global remittance provider sought to expand its offerings by introducing digital token payment services alongside its traditional money transfer operations. This required obtaining an additional license and meeting stringent regulatory expectations for virtual asset service providers.

The firm needed to:

• Integrate digital asset compliance into its existing high-volume cross-border framework.
• Adapt AML/KYC processes for virtual assets.
• Develop policies and operational controls to satisfy regulatory scrutiny.
• Respond effectively to regulator queries to secure timely licensing.

Activities

Waystone provided end-to-end compliance support, including:

• Customized KYC procedures for virtual assets (source of funds/wealth checks).
• Integrated the client’s existing Enterprise-Wide Risk Assessment (EWRA) into the digital token framework.

• Designed a bespoke Travel Rule Compliance Framework (TRCF) to enable automated data transmission between traditional remittance and digital token transactions.
• Ensured originator and beneficiary information met cross-service regulatory standards.

• Developed comprehensive policies for cold storage, operational resilience, market surveillance, and cybersecurity.
• Updated compliance manuals, AML/KYC policy, technology risk policy, risk management framework, and business continuity plan.
• Managed regulator engagement, addressing detailed queries and clarifying compliance intent.

• Reviewed applicable rules and guidance to interpret regulatory expectations.
• Strengthened client responses to the Authority, contextualizing data and recommending additional evidence or controls.

Results

• Delivered comprehensive policy policies and procedures, which enabled the firm to quickly and effectively address regulatory queries, leading to the timely issuance of a conditional license.
• Delivered a robust compliance framework that integrated traditional and digital asset operations.
• Positioned the client as a trusted provider in the evolving digital payments space, enabling faster market entry and competitive advantage.