Hong Kong Crypto Licensing Tightens Grip: Dealers and Custodians Face Strict New Mandate

Hong Kong just dropped a regulatory hammer on crypto. The city's financial watchdogs are expanding licensing requirements, and the new rules aren't for the faint of heart.

The New Compliance Frontier

Forget the wild west. The mandate targets two critical pillars: virtual asset dealers and custodians. It's a direct move to institutionalize the market—forcing every player to operate under a microscope. The subtext is clear: get licensed or get out.

Why the Crackdown Now?

Global pressure is mounting. Hong Kong wants the capital but not the chaos. By imposing strict custodial and operational standards, authorities aim to attract serious capital while weeding out bad actors. It's a classic playbook—regulation first, mainstream adoption second. Some traditional finance veterans are probably smirking, watching crypto finally get a taste of their own compliance medicine.

The Bottom Line for the Market

Short-term pain for long-term legitimacy. Liquidity might tighten as smaller players fold or flee. But for surviving firms? This could be the golden ticket. A Hong Kong license will soon signal trust in a skeptical world, potentially unlocking billions in institutional funds currently sitting on the sidelines.

Hong Kong isn't just opening the door to crypto—it's building a fortress with very specific entry codes. The message to the industry: play by our rules, or don't play at all.

New Licensing Plan Brings Crypto Brokers and Custodians Into Oversight

The move follows months of consultation and comes as authorities seek to close regulatory gaps that emerged as crypto activity spread beyond licensed exchanges into over-the-counter trading, brokerage services, and third-party custody.

Regulators said the proposals received broad market support and will now MOVE into the legislative phase, marking another step in building a comprehensive digital asset regime under the SFC’s ASPIRe roadmap.

According to the SFC release, all virtual asset dealers will be regulated in a way that closely mirrors existing rules for securities dealers.

Notably, the licensing requirement will cover a wide range of activities, including virtual asset-to-fiat and virtual asset-to-virtual asset conversions, brokerage services, block trading, and related advisory functions, whether conducted online or through physical outlets.

This brings OTC trading and broker-style services squarely within regulatory oversight for the first time.

Also, under the planned framework, custodians will also face a dedicated licensing regime focused on the safekeeping of client assets. Any entity holding or controlling private keys for client virtual assets in Hong Kong will need to be licensed or registered.

Regulators said the regime is designed to address risks around asset protection by requiring strict segregation of client assets, strong internal controls over key management, enhanced cybersecurity standards, and robust business continuity planning.

Dealers will be required to place client assets only with licensed or registered custodians operating in Hong Kong.

Both regimes will impose fit-and-proper requirements on applicants, alongside minimum financial resource thresholds.

Dealers are expected to meet capital requirements of around HK$5 million, while custodians will face higher thresholds, including HK$10 million in paid-up capital.

Hong Kong’s Crypto Framework Grows to Include Advisers and Managers

Alongside the dealer and custodian regimes, regulators launched a further consultation on extending licensing requirements to virtual asset advisory and management service providers.

The proposals WOULD bring crypto advisers and asset managers under a similar regulatory structure to their traditional finance counterparts, giving the SFC powers to supervise, inspect, and sanction firms operating in this part of the market.

SFC Chief Executive Officer Julia Leung said the expanded framework is intended to support a secure and competitive digital asset ecosystem while maintaining strong investor protection.

Regulators are encouraging firms interested in the new regimes to engage early with the SFC through pre-application discussions to better prepare for compliance.

The latest step builds on a series of regulatory developments over the past year. Hong Kong already requires crypto trading platforms to be licensed, with 11 exchanges approved so far under a mandatory regime that replaced an earlier opt-in framework.

Earlier in 2025, the city brought its Stablecoin Ordinance into force, creating a licensing regime for stablecoin issuers.

Stablecoin licensing frameworks are advancing globally as regulators in Hong Kong seek to manage new forms of digital settlement.#hongkong #stablecoinhttps://t.co/hHATckRvWQ

Authorities have also taken steps to expand market access, including allowing licensed exchanges to connect to global liquidity pools and easing certain token listing requirements.

The proposal, still subject to consultation, reflects a cautious approach that distinguishes between regulated stablecoins and more volatile crypto assets.