Hong Kong Moves to Criminalise Unlicensed Virtual Asset Activity Under New Regulatory Regime

Hong Kong’s Financial Services and the Treasury Bureau, together with the Securities and Futures Commission, have concluded consultations on the introduction of new licensing regimes for virtual asset dealers and custodians, confirming that operating such businesses without a licence will constitute a criminal offence. Under the proposed framework, unlicensed activity will be punishable by a fine of HK$5 million and up to seven years’ imprisonment, marking a major expansion of Hong Kong’s regulatory architecture for digital assets. The move is aimed at curbing money laundering risks and safeguarding the integrity of the financial system, with authorities stressing that firms offering virtual asset dealing or custody services will be required to comply with rigorous anti-money laundering and counter-terrorist financing standards aligned with international norms. The government plans to submit the formal legislative bill to the Legislative Council in 2026, with the objective of ensuring that all intermediaries within the virtual asset ecosystem are subject to a single, consistent supervisory framework designed to prevent illicit financial flows.

The conclusion of the consultation process clarifies that the proposed HK$5 million fine is not linked to any past misconduct by a specific entity but forms a central element of a new statutory regime that will govern the entire digital asset intermediary sector once enacted. By setting such a high financial and criminal threshold, regulators are signalling that unlicensed virtual asset operations will be treated with the same seriousness as major offences in the conventional financial sector. The framework is forward-looking in nature, establishing a clear requirement that any business wishing to provide virtual asset dealing or custody services in Hong Kong must first obtain formal regulatory approval. The Securities and Futures Commission has underlined that this approach is intended to prevent the emergence of a parallel or shadow financial system in which money laundering and other illicit activities could thrive beyond the reach of effective oversight.

A core pillar of the new regime is the strengthening of anti-money laundering safeguards, particularly in relation to the custody of digital assets and the execution of blockchain-based transactions. The Securities and Futures Commission has pointed out that virtual asset custodians occupy a critical position in the ecosystem, given their role in safeguarding private keys and client assets, and that effective regulation of these entities is essential to preventing misuse for money laundering or terrorist financing. Under the proposed rules, custodians will be required to adopt robust internal controls and comprehensive risk management systems tailored to the technical and operational risks inherent in blockchain technology. Virtual asset dealers, for their part, will be expected to conduct thorough checks on the source of funds and to monitor transactions for patterns that may indicate financial crime. These requirements are designed to bring Hong Kong fully into line with the recommendations of the Financial Action Task Force, reinforcing its position as a secure and credible hub for digital asset innovation while reducing the scope for abuse linked to the speed and perceived anonymity of virtual assets.

The new framework will also significantly expand regulatory oversight and enforcement capabilities. The Securities and Futures Commission will be granted wide-ranging supervisory and investigative powers, including the authority to carry out routine inspections, demand the production of records and documents, and investigate suspected breaches of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance. The enforcement model is intended to be proactive rather than reactive, with the regulator encouraging prospective applicants to engage in pre-application discussions to ensure their business models and controls are aligned with the forthcoming standards. In addition to criminal sanctions, the commission will have the ability to impose administrative measures such as public reprimands, licence suspensions or outright revocations where firms fail to meet fit-and-proper requirements. This layered enforcement approach is designed to preserve transparency in the virtual asset market and to ensure that any attempts to circumvent anti-money laundering obligations are met with swift and meaningful consequences.

The planned legislative move in 2026 represents the final stage of Hong Kong’s broader strategy to build a comprehensive and secure digital asset environment. By bringing virtual asset advisory and management activities within the scope of licensing, the authorities are applying the principle of “same business, same risks, same rules,” thereby reducing the potential for regulatory arbitrage. This integrated approach ensures that every link in the virtual asset value chain is assessed for financial crime risks. The close coordination between the Financial Services and the Treasury Bureau and the Securities and Futures Commission reflects a unified policy commitment to balancing innovation with financial stability and regulatory discipline. As the legislative proposal advances toward the Legislative Council in 2026, the industry is expected to transition fully into a regulated model in which adherence to anti-money laundering and counter-terrorist financing requirements becomes not just a statutory duty but a fundamental condition for participation in Hong Kong’s digital asset market.

By fLEXI tEAM