Hong Kong Financial Regulator Tightens Rules on Crypto Custody Practices

Hong Kong’s regulator enforces strict custody rules for crypto platforms to boost security and protect client assets.

Fridah Kangai
August 16, 2025
2:30 pm

Fridah Kangai

Fridah Kangai is a dedicated crypto journalist with a sharp eye for market trends, blockchain innovation, and digital asset movements. She specializes in breaking down complex topics into clear, engaging stories for both seasoned investors and curious newcomers. With a passion for decentralization and a pulse on the ever-evolving crypto space, Fridah delivers timely, accurate, and insightful coverage. Her work bridges the gap between technology and everyday understanding in the world of cryptocurrency.

Hong Kong sets stricter custody rules for licensed crypto platforms.
SFC targets security gaps with immediate custody practice requirements.
Crypto hacks push Hong Kong to tighten virtual asset safeguards.

Hong Kong’s Securities and Futures Commission has issued new guidance for licensed virtual asset trading platforms to improve client asset protection. According to the regulator, these measures follow recent overseas incidents where poor safeguards led to substantial investor losses.

The new regulations guide licensed operators to undertake critical reviews of their custody systems and implement stricter controls. This move also stems from an earlier targeted review by the SFC, which identified cybersecurity weaknesses in some platforms’ operations.

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New Guidelines Set Clear Custody Requirements

The regulator specified the requirements that included senior management responsibility, the security of cold wallets, the oversight of third-party wallets, and real-time threat monitoring. These measures will also act as the foundation for future rules applying to virtual asset custodians.

The instructions are effective immediately and are likely to shift market control to operators who have the means to comply. Alessio Quaglini, co-founder of Hong Kong-based Hex Trust, said this could make advanced custody arrangements more practical for larger players.

Security Breaches Prompt Stronger Oversight

The SFC’s move follows a wave of cyber incidents affecting international crypto exchanges and other platforms. According to PeckShield data, the losses related to hacks in July were $142 million, which is 27 percent more than in June.

#PeckShieldAlert In July 2025, ~17 major crypto hacks were recorded, resulting in total losses of $142M—a 27.2% increase (from $111.6M in June). Notably, the #GMX exploiter has returned ~$40.5M worth of cryptos, including 10K ETH and 10.5M $FRAX.#Top5 Hacks in July 2025:… pic.twitter.com/Y5VLUILq5Z
— PeckShieldAlert (@PeckShieldAlert) August 1, 2025

Although mainland China still prohibits cryptocurrency trading and mining, Hong Kong has taken a different approach. On August 1, authorities introduced a licensing regime for exchanges and started a new regime for licensing stablecoin issuers.

The regulator intends to enhance investors’ confidence by making assets more secure. These measures will help officials minimize the risks that have resulted in serious financial losses in other markets in the past.

The new custody regulations show that Hong Kong is concerned with developing a safe and competitive digital assets sector. Platforms that can meet the enhanced standards will be better positioned to operate in the city’s regulated market.

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