Hong Kong's virtual asset industry is regulated by the Securities and Futures Commission (SFC). Since its 2018 regulatory framework proposal, the SFC has actively monitored virtual asset platforms through initiatives like the 2019 Sandbox Program, which allowed experimental oversight of compliant exchanges.
On November 6, 2019, the SFC released guidelines for platforms trading security tokens, formalizing its regulatory approach.
Latest Trends in Crypto Licensing
- Huobi: Secured Type 4 (investment advice) and Type 9 (asset management) licenses in March 2024.
- OSL (BC Group): Became the first SFC-licensed digital asset exchange with Type 1 (securities trading) and Type 7 (automated trading services) approvals.
Key License Types for Crypto Businesses
| License Type | Scope | Relevance |
|---|---|---|
| Type 1 | Securities Trading | Mandatory for security token platforms |
| Type 7 | Automated Trading Services | Required alongside Type 1 |
| Type 9 | Asset Management | Popular among hedge funds |
Critical Notes:
- Type 1 + 7 Combo: Essential for security token exchanges (e.g., OSL).
- Type 1 Subtypes: "Full" licenses (brokerage) vs. "introductory" (referral-only).
- Type 9 Flexibility: Traditional asset managers must file separately for crypto fund allocations.
- Hybrid Use: Firms offering trading + advisory often bundle Types 1/9 with Type 4 (consulting).
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Application Requirements
Option 1: Direct Application
Corporate Criteria
- Hong Kong-registered entity
- Transparent ownership (10%+ shareholders disclosed)
Financials
- Type 1/7: Minimum HKD 5M capital
- Type 9: HKD 2M (scalable for crypto funds)
Personnel
Two RO (Responsible Officers) required:
- Senior RO: Prior licensing experience
- Junior RO: HKSI exam passes + industry background
- Avoid "ghost ROs" – SFC penalties include license revocation.
Option 2: Acquisition
Steps
- File for SFC approval (3–4 months).
- Submit audited financials + business continuity plans.
- Demonstrate post-acquisition compliance (e.g., risk controls for cross-border PE firms).
Risks
- Hidden liabilities
- Overpriced assets (current market premiums: ~30%)
- Regulatory pushback on non-financial buyers
Timelines & Costs
| Method | Duration | Estimated Cost |
|--------|----------|----------------|
| New Application | 6+ months | HKD 300K–1M+ |
| Acquisition | 3–4 months | HKD 1.5M–5M+ |
FAQs
Q1: Can foreign firms apply for SFC crypto licenses?
A: Yes, but must establish a Hong Kong subsidiary with local ROs.
Q2: What’s the minimum crypto allocation for Type 9 funds?
A: Start at 10%; increase gradually with SFC approval.
Q3: How does Type 7 differ from Type 1?
A: Type 7 covers algorithmic/API trading systems, while Type 1 focuses on securities execution.
Q4: Are licensing fees tax-deductible?
A: Yes, but consult a Hong Kong tax advisor for specifics.
Q5: What happens if ROs resign unexpectedly?
A: Firms have 3 months to replace them or suspend operations.
Q6: Can I operate with just a Type 4 license?
A: No – advisory-only (Type 4) doesn’t permit trading or custody services.