The Hong Kong Legislative Council has passed amendments to its Anti-Money Laundering and Counter-Terrorist Financing (AML/CTF) regime, marking a pivotal moment in the city’s approach to regulating digital assets. The new framework introduces a mandatory licensing system for cryptocurrency service providers, requiring all local crypto platforms to obtain authorization from the Securities and Futures Commission (SFC) before operating. This landmark move positions Hong Kong as a serious player in the global push for responsible innovation in the crypto space.
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A New Era of Crypto Regulation in Hong Kong
On December 7, the revised legislation cleared its third reading with majority support, setting the stage for the licensing regime to officially take effect on June 1, 2025. Under the new rules, any entity offering cryptocurrency trading, custody, or exchange services within Hong Kong must first secure a license from the SFC and comply fully with the updated Anti-Money Laundering and Counter-Terrorist Financing Ordinance.
This regulatory shift reflects Hong Kong’s strategic ambition to become a trusted hub for digital asset innovation while safeguarding financial integrity. By aligning crypto businesses with traditional financial institutions in terms of compliance obligations, the government aims to mitigate risks such as money laundering, fraud, and market manipulation.
Professional Investors First: Retail Access Still Pending
In the initial phase of implementation, only professional investors will be permitted to access licensed crypto platforms. These are individuals or entities meeting strict financial thresholds—such as having portfolios exceeding HK$8 million (approximately USD 1.03 million)—designed to ensure participants possess sufficient risk awareness and capital resilience.
For retail investors, access remains restricted for now. The government has emphasized that it will conduct public consultations before making any final decisions on opening the market to everyday users. This cautious approach underscores concerns over investor protection, especially in light of past industry failures like the FTX collapse.
Evolution of Crypto Oversight Since 2018
Hong Kong’s journey toward comprehensive crypto regulation began in 2018 when the SFC first introduced its cryptocurrency regulatory framework. At that time, it launched a voluntary licensing model, allowing exchanges to opt into supervision. However, even under that system, only professional investors were allowed to participate due to high entry barriers.
While voluntary oversight provided some level of transparency, it lacked enforcement power. The new mandatory regime closes this gap by legally requiring compliance, thereby enhancing accountability across the board.
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Regulatory Parity with Traditional Finance
According to Christopher Hui, Secretary for Financial Services and the Treasury, crypto service providers under the new law will be held to the same standards as banks and securities firms when it comes to AML/CTF requirements. This includes:
- Customer due diligence (CDD)
- Suspicious transaction reporting
- Ongoing monitoring of user activity
- Record-keeping and internal compliance controls
Such parity strengthens Hong Kong’s reputation as a transparent and secure financial center, potentially attracting institutional capital looking for regulated exposure to digital assets.
Industry Reactions: Balancing Innovation and Control
Legislative Council member Louis Luk, representing the financial services sector, welcomed the move but highlighted concerns about balancing innovation with oversight. He pointed to the FTX bankruptcy as a stark reminder of why robust regulation is essential—but also warned that overly restrictive rules could limit consumer choice.
“There's a real risk that retail investors may turn to unlicensed offshore platforms if they feel shut out,” Luk cautioned. “Regulation should protect without excluding.”
His remarks highlight a critical challenge: ensuring compliance without driving demand toward less secure, unregulated alternatives.
Key Gaps Remain: The Case of NFTs
Despite the progress, gaps in the legislation have drawn criticism. Notably, non-fungible tokens (NFTs) are not covered under the current regulatory scope, even though NFT trading volumes have surged and present potential risks related to fraud and money laundering.
Wally Yeung, another Legislative Council member representing the business community, urged authorities to address this oversight. “The NFT market is massive and evolving rapidly,” he said. “If we don’t regulate it now, we’re leaving a dangerous loophole.”
Without clear guidelines for NFTs, regulators may struggle to monitor illicit activities disguised as digital art or collectible sales.
Who Can Apply for a License?
Only companies incorporated or registered in Hong Kong will be eligible for licensing. This effectively excludes overseas platforms from direct regulation—even if they serve Hong Kong-based users.
This raises important questions about consumer protection. Users accessing foreign exchanges may lack recourse in cases of fraud or platform failure, and enforcement against offshore operators remains limited.
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Frequently Asked Questions (FAQ)
Q: When does Hong Kong’s new crypto licensing system take effect?
A: The mandatory licensing regime for cryptocurrency service providers will officially launch on June 1, 2025.
Q: Can retail investors use licensed crypto platforms in Hong Kong?
A: Not yet. Initially, only professional investors—those meeting high financial thresholds—will be allowed to access licensed platforms. Retail access will be reviewed after public consultation.
Q: Do overseas crypto exchanges need to comply with Hong Kong’s new rules?
A: No. Only companies incorporated or registered in Hong Kong are required to obtain a license. Offshore platforms serving Hong Kong users fall outside direct regulatory reach.
Q: Why aren’t NFTs included in the new regulations?
A: The current amendment focuses on core crypto asset services like trading and custody. Despite growing transaction volumes and risks, NFTs were excluded from the scope, prompting calls for future legislative updates.
Q: What are the main responsibilities of licensed crypto firms?
A: Licensed providers must adhere to strict anti-money laundering and counter-terrorist financing protocols, including identity verification, transaction monitoring, suspicious activity reporting, and maintaining comprehensive records.
Q: How does this affect investor safety?
A: The new rules enhance investor protection by ensuring greater transparency, operational accountability, and regulatory oversight—especially important following major industry collapses like FTX.
With this forward-looking regulatory framework, Hong Kong is laying the groundwork for a secure, innovative digital asset ecosystem. While challenges remain—particularly around retail inclusion and emerging technologies like NFTs—the city is taking decisive steps toward becoming a global leader in responsible crypto innovation.