Author: Iris, Bai Zhen, Huang Wenying
On February 19, 2025, the Hong Kong Securities and Futures Commission (SFC) released the latest regulatory roadmap for the virtual asset market, "A-S-P-I-Re," aimed at further improving the regulation of the virtual asset market, introducing more types of virtual asset products and functions, and balancing innovation and risk management in Hong Kong's Web3 industry.
The roadmap proposes that the SFC will next implement five major pillars: Access, Safeguards, Products, Infrastructure, and Relationships, along with 12 actions, including but not limited to optimizing the licensing system, promoting the regulation of OTC and custody services, researching the allowance for professional investors to trade derivatives and staking, and establishing Hong Kong as a compliant and trustworthy liquidity center for virtual assets.
For lawyer Mankun, the release of this regulatory roadmap also means that the compliance direction and path for Web3 project startups in Hong Kong are becoming increasingly clear. Therefore, in this article, Mankun will first summarize the roadmap, extracting key regulatory directions and relevant compliance matters for Web3 projects entering Hong Kong for practitioners to understand.
Pillar A: Expanding Access
In 2024, the SFC officially implemented a licensing system for virtual asset trading platforms (VATP), and several virtual asset trading platforms in Hong Kong have been approved to operate.
However, there are still access barriers in the market, especially as Over-the-Counter (OTC) and custody services have not yet been included in the regulatory framework, which not only affects the integrity of the market structure but also limits investors' trading options. To address this, the SFC proposed establishing an independent licensing system for OTC trading and custody services under Pillar A, allowing non-VATP businesses to operate within a compliant framework. OTC trading is crucial for large transactions, and custodians are key to ensuring asset safety; the new licensing system will fill market gaps and enhance the safety and transparency of the Hong Kong market.
At the same time, the Hong Kong virtual asset market cannot rely solely on local virtual asset trading platforms; liquidity providers (LPs) and global virtual asset trading platforms can also bring fresh blood to Hong Kong's virtual asset market. Therefore, the SFC also plans to appropriately lower the threshold in 2025 to compliantly introduce such providers, enabling local investors to access a broader global order book while reducing trading costs and increasing market liquidity.
For Web3 companies, the launch of Pillar A signifies a change in market access thresholds. Companies planning to provide OTC trading or custody services in Hong Kong need to closely monitor the new licensing requirements, while licensed trading platforms will face greater competitive pressure from international platforms. Meanwhile, the opening of global liquidity will make Hong Kong a more attractive virtual asset center but will also raise higher compliance demands on companies.
Pillar S: Optimizing Compliance Requirements
At the end of 2024, the SFC summarized the licensing processes and outcomes of that year, deeming it necessary to optimize compliance processes and enhance licensing speed while ensuring market safety. Meanwhile, the global regulatory environment is constantly evolving, and overly strict compliance requirements may reduce the attractiveness of the Hong Kong market and hinder the entry of global liquidity.
Therefore, under Pillar S, the SFC proposed a series of adjustment plans to optimize custody, storage ratios, insurance compensation mechanisms, and investor access rules, ensuring that while maintaining market safety, unnecessary compliance costs are reduced, and market competitiveness is improved.
For example, the current custody requirements and cold storage ratios in Hong Kong are too rigid, which may lead to VASPs facing liquidity management difficulties during high trading volume periods. The SFC plans to allow trading platforms to choose custody methods and optimize cold and hot storage ratios based on their own risk management strategies in the upcoming adjustments, supplemented by independent audits, real-time monitoring, and other mechanisms to ensure fund safety while enhancing operational efficiency. Additionally, mandatory insurance and compensation mechanisms will also be more flexible; in the future, VASPs will be able to choose suitable insurance plans based on their business models rather than a one-size-fits-all standard.
Regarding investor access, the SFC plans to clarify the product classification framework, allowing Web3 companies to clearly define their compliance paths during product issuance and market access. For instance, different types of virtual assets such as security tokens, stablecoins, and RWA (real-world asset tokenization) may be subject to different regulatory requirements to reduce compliance uncertainty and ensure market transparency for investors.
For Web3 companies, the adjustments under Pillar S mean a reduction in compliance costs but also raise higher technical and risk control requirements. Trading platforms and custodians need to adjust their storage and security strategies according to the new regulatory framework, while project parties planning to enter the Hong Kong market need to more clearly position the regulatory attributes of their products to ensure compliant operations.
Pillar P: Expanding Product Range
Currently, the Hong Kong virtual asset trading market mainly revolves around the spot market. Meanwhile, taking Hong Kong's largest licensed exchange, HashKey Exchange, as an example, it currently only offers a few mainstream cryptocurrencies (such as BTC, ETH), resulting in low overall product diversity in the market. Compared to the global market, there is still significant room for expansion in Hong Kong's trading ecosystem, especially in financial instruments such as derivatives, staking, lending, and structured products.
Therefore, the introduction of Pillar P signifies that the SFC plans to expand a wider range of tradable products within a compliant framework to meet the needs of professional investors for risk management tools and market depth. The core idea of the regulatory body is not to fully liberalize but to first open some high-risk products to professional investors (Professional Investors, PI) under the Investor Suitability Principle, while enhancing transparency and market regulation.
First, the SFC plans to allow professional investors to trade new tokens and virtual asset derivatives. The listing of new tokens will be based on stricter due diligence and information disclosure requirements, ensuring that only tokens meeting the standards can enter the market for trading. At the same time, the SFC will also study the regulatory framework for virtual asset derivatives to support professional investors in hedging, arbitrage, and risk management.
In addition to the expansion of trading products, the SFC also proposed exploring a compliance framework for staking and lending businesses under Pillar P. Currently, staking and lending have become mainstream virtual asset investment strategies in the global market, but the regulation of these services in Hong Kong remains in a gray area. In the future, it is expected that the SFC will allow regulated trading platforms to offer staking and lending services, but they may be required to meet specific custody, risk management, and information disclosure standards.
The implementation of this series of measures means that the types of products in the Hong Kong market will align more closely with international standards, but it also requires Web3 companies to invest more resources in compliance and risk control. For project parties planning to provide staking or lending services in Hong Kong, establishing a secure asset custody mechanism and a transparent profit distribution model may become key elements of compliance.
Pillar I: Enhancing Regulatory Capacity
With various airdrop phishing incidents and the recent recommendation of a MEME coin suspected of insider trading by the president, the Web3 market has never been short of issues such as market manipulation, fraudulent trading, and money laundering. However, currently, the SFC, or most regulatory agencies in various countries and regions, mainly relies on event-triggered regulation, taking action only when security incidents occur. This post-event regulatory model clearly has significant lag, making it difficult to effectively prevent market manipulation or fraudulent trading.
Therefore, under Pillar I, the SFC plans to enhance its regulatory capacity across the market by optimizing the regulatory reporting mechanism and introducing data-driven monitoring tools through new technological tools and infrastructure construction. The SFC proposed to study ways to report digital asset information directly and explore various data-driven monitoring tools, including transaction monitoring, blockchain intelligence, and wallet tracking, to identify fraud, financial crime, and market misconduct earlier.
At the same time, the SFC plans to strengthen inter-agency cooperation, including but not limited to collaboration with the Hong Kong Police, the Hong Kong Monetary Authority (HKMA), and the International Organization of Securities Commissions (IOSCO) to jointly combat market manipulation and illegal trading.
For Web3 companies, especially virtual asset trading platforms, the regulatory upgrades under Pillar I mean stricter data reporting obligations and higher transaction transparency requirements. Therefore, companies need to strengthen compliance management and risk control systems to ensure compliance with future regulatory standards, especially in transaction data reporting, asset flow monitoring, and anti-money laundering compliance.
Pillar Re: Market Education and Awareness
The complexity and high risk of the virtual asset market make investor education and industry transparency issues that cannot be ignored. Pillar Re in the roadmap focuses primarily on Web3 market education, industry communication, and regulatory transparency, aiming to help investors better understand the market and promote interaction between Web3 companies and regulatory agencies.
One noteworthy initiative is that the SFC plans to establish a regulatory framework for Finfluencers (financial influencers). In recent years, social media has been flooded with numerous investment recommendations regarding virtual assets, and some KOLs (Key Opinion Leaders) have influenced investor decisions through misleading promotions, with a few KOLs even becoming part of scams. Therefore, the SFC plans to promote responsible behavior and accountability among financial influencers to ensure they help investors better understand virtual asset investments and protect their interests. Once implemented, this initiative may mean that marketing compliance requirements in the Hong Kong market will become stricter for Web3 companies and KOLs, with higher standards of regulation on KOL and social media promotions.
In addition to the initiatives targeting KOLs, regulatory agencies also plan to launch investor education programs to enhance the awareness of market participants and reduce investment risks. Furthermore, Pillar Re emphasizes the establishment of industry communication platforms to improve policy transparency. The SFC plans to strengthen communication with Web3 companies through a Virtual Asset Consultation Group (VACP), allowing market participants to more directly understand regulatory policies and provide feedback during policy formulation. This way, Web3 companies can utilize the official industry communication platform to establish closer communication with regulatory agencies, ensuring compliance and sustainability in their operations.
Summary by Mankun
The release of the "A-S-P-I-Re" roadmap by the Hong Kong Securities and Futures Commission (SFC) is undoubtedly an important milestone in the compliance process of Hong Kong's virtual asset market. From the five major pillars and 12 measures, the SFC is attempting to seek a balance between risk control and market development. For Web3 companies, the introduction of this series of new regulations not only means that the compliance thresholds in the Hong Kong market are clearer but also that compliance costs, market competition, and regulatory requirements will be comprehensively upgraded.
As a lawyer who has long focused on the regulation of the Hong Kong virtual asset market, Mankun maintains close communication with Hong Kong regulatory agencies and deeply participates in the licensing applications, business compliance, and regulatory adaptation of Web3 companies in Hong Kong. In the face of the upcoming SFC regulatory upgrades, Mankun will closely monitor the situation and develop compliance solutions to optimize the business structure of virtual asset trading platforms, crypto funds, Web3 startups, and cross-border business teams within a compliant framework, enhancing market adaptability.
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