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- Crypto rules may block traditional managers from testing small, diversified allocations.
- Removing the 10% exemption could force full licensing for minimal portfolio exposure.
- Custody and licensing mandates may restrict early-stage token access for investors.
Hong Kong’s securities sector is resisting a regulatory proposal that would restrict how traditional portfolio managers gain crypto exposure. Industry representatives warn the plan could deter global asset managers and slow the city’s attempt to build a broader digital-asset market.
The Hong Kong Securities and Futures Professionals Association issued a detailed submission on Tuesday. It urged regulators to keep the long-standing *de minimis* exemption for Type 9 asset managers. The group said removing it would turn very small allocations into a licensing trigger.
Type 9 licensing covers discretionary portfolio management under the Securities and Futures Commission. Most traditional fund houses operate under this category. The proposal would affect a large segment of firms that manage client portfolios across asset classes.
Proposed Rule Removes 10% Crypto Allocation Allowance
The existing regulations allow Type 9 managers to invest in virtual assets less than 10% of the gross asset value of a fund. All they have to do is inform the Securities and Futures Commission. In the proposed new changes being consulted, this would be removed.
The association claimed that the shift leaves the managers with an either or decision. It claimed that the method increases compliance expenses despite any minimal exposure. Companies that experimented with crypto as a diversifier would have the same amount of regulation as virtual asset managers on a full scale.
The team suggested that the exemption be reinstated in its risk-based, transparent way. It suggested that managers under a specified threshold required notification. It had declared this structure would be transparent without creating any unnecessary licensing requirements.
Also Read: NYSE Unveils Platform for 24/7 Trading of Tokenized Securities
The submission also addressed custody requirements in the consultation. Regulators proposed that virtual asset managers must use only SFC-licensed custodians. The association said this could create bottlenecks.
Custody Rules Could Limit Early-Stage Token Access
Private equity and venture funds often hold early-stage tokens. Local custodians may not support those assets. The group warned the mandate could limit participation in token investments until broader custody coverage exists.
The proposal forms part of Hong Kong’s wider effort to expand oversight of digital-asset activities. Authorities recently released conclusions on virtual asset dealing services. They also opened a public consultation on advisory and management licensing.
Officials have said they want rules that integrate with the existing regulatory framework. The aim is to create consistency for firms that run both traditional and crypto strategies. They also want a structure that supports institutional growth while reducing reliance on case-by-case interpretations.
The debate matters for traditional portfolio managers. Keeping the 10% exemption allows limited crypto exposure without major administrative burdens. Removing it would require a full license even for small trial allocations.
Regulators have not finalized the proposals. The consultation period will inform revisions before legislation moves to the Legislative Council in 2026.
Also Read: South Korean Authorities Disrupt $101.7 Million Crypto-Based Money Laundering Scheme
