Hong Kong’s Securities and Futures Professionals Association (HKSFPA) filed objections on January 19–20, 2026 to proposed virtual-asset licensing measures, arguing the package would impose disproportionate compliance costs and deter traditional asset managers from entering the market. The association’s core message is that the draft approach raises barriers in ways that are not proportional to risk.
The proposals stem from consultation conclusions published in December 2025, and the public comment window remains open until February 6, 2026, when regulators will review industry feedback. This timing makes the current consultation period the primary leverage point for shaping how licensing, custody, and reporting obligations will land in practice.
The Licensing and Custody Changes HKSFPA Is Challenging
HKSFPA warned that removing the 10% de minimis threshold would force managers with minimal exposures—down to a 1% allocation—to obtain full virtual-asset licenses. The association argued that eliminating the threshold becomes an “all-or-nothing approach” and asked for a reinstated, risk-based exemption or a notification regime for small allocations.
The group also criticized a proposed mandate to use only SFC-licensed custodians, describing it as impractical for private equity and venture capital funds that buy early-stage tokens not yet supported by local custodians. HKSFPA urged flexibility through limited self-custody rules and acceptance of qualified offshore custodians for professional investors.
HKSFPA also addressed CARF and CRS amendments, stating it does not oppose tax transparency but objects to the operational mechanics as drafted. It flagged uncapped penalties, tight reporting deadlines, and potential data-privacy conflicts, and requested explicit penalty caps, stronger legal protections for data collection, and lighter requirements for entities with minimal reporting activity.
Why This Matters for Market Structure and Institutional Participation
The filing framed the package as likely to divert established managers away from Hong Kong’s virtual-asset ecosystem unless the rules are calibrated. HKSFPA argued that high entry barriers and rigid custody requirements could block Hong Kong-based managers from operating Web3-focused venture funds and push trading and custody activity offshore.
Operational and compliance cost risk around CARF was presented as an additional pressure point, with the association warning that open-ended penalties and cross-border data friction could create legal and procedural uncertainty. That uncertainty, in turn, can increase onboarding friction for institutional investors and slow allocation decisions.
For fund managers considering digital-asset exposure, the filing signals intensified lobbying ahead of the consultation close and highlights the policy trade-off regulators must manage. The decision set is whether to enforce one-size-fits-all controls or implement a risk-based regime that preserves institutional access while addressing custody, reporting, and consumer-protection risks.
Investors and industry participants are now focused on the February 6, 2026 deadline as the key milestone for whether policymakers accept calls for a reinstated de minimis threshold, custody flexibility, and clearer safeguards around CARF implementation. The outcome will shape the practical cost and complexity of participating in Hong Kong’s regulated virtual-asset market.