Management Summary
- Purpose / Background: This document sets out the regulatory terms and conditions for Licensed Corporations (LCs) and Registered Institutions (RIs) acting as "Virtual Asset Fund Managers" (VAFMs). It defines the operational, custodial, and conduct standards for entities managing portfolios where ≥10% of Gross Asset Value (GAV) is invested in virtual assets (VA).
- One-line conclusion: VAFMs must implement rigorous custodial safeguards, maintain minimum liquid capital of HK$3 million, and ensure suitability and comprehensive risk disclosure for all VA-related investment activities.
- Key Changes:
- Established a "de minimis" threshold (10% GAV) for regulatory applicability.
- Mandated strict segregation of client assets and formal oversight of custodial arrangements (including self-custody controls).
- Introduced specific liquidity requirements for VAFMs holding client assets.
- Formalized requirements for discretionary account management, including client knowledge assessments.
- Integrated Stablecoins (under the Stablecoins Ordinance) into the regulatory framework.
- Set explicit record-keeping requirements (7-year retention).
- Key Dates / Deadlines: Effective May 2026.
- Applicability / Impact scope: All SFC-licensed corporations and HKMA-registered institutions managing funds or discretionary accounts that invest in Virtual Assets exceeding the de minimis threshold.
- Recommended management actions:
- Conduct a gap analysis of current custodial arrangements against the "safety of fund assets" requirements (paragraphs 4.1-4.12).
- Implement formal policies for self-custody and independent custodian selection, ensuring thorough due diligence and documentation.
- Update client onboarding and risk disclosure templates to include mandatory VA-specific warnings (unless stablecoin-exclusive).
- Review liquid capital levels to ensure compliance with the HK$3 million minimum.
- Establish robust cybersecurity and risk management frameworks for VA operations, including IP/wallet whitelisting procedures.
Detailed Summary
- Document Overview:
- The document applies to LCs/RIs managing VA portfolios. It applies if a fund's objective is to invest in VAs or if it intends to hold ≥10% of GAV in VAs. It does not apply if the fund mandate is mainly securities and the 10% threshold is exceeded due to price volatility (provided the manager takes steps to reduce exposure).
- Main Requirements:
- Financial Resources: Must maintain liquid capital of at least HK$3 million (or higher variable capital).
- Custody: Must appoint an independent custodian; however, if self-custody is used, the VAFM must maintain strict internal controls, declare a trust over wallets, and carry insurance. All custodial decisions must be documented.
- Operational Controls: Requires specific controls for whitelisting IP/wallet addresses and account creation.
- Valuation: Policies must be reasonable, appropriate, and in the best interests of investors.
- Audit: Annual audited financial statements for all managed funds are mandatory.
- Key Changes:
- Formalized integration of the *Stablecoins Ordinance* (SO).
- Enhanced requirements for discretionary account managers, including suitability assessments and mandatory written client agreements.
- Important Dates & Transition:
- Effective: May 2026.
- Immediate requirement to notify the SFC/HKMA of significant business model changes at least 7 business days in advance.
- Impact and Risks:
- Operational: High burden on due diligence for custodians and trading platforms.
- IT/Data: Necessity for secure key management and cybersecurity defenses.
- Compliance: Increased reporting obligations and the need for frequent reconciliation of omnibus accounts.
- Compliance Action Checklist:
- [ ] Audit existing custodial agreements to ensure alignment with Section IV.
- [ ] Map "de minimis" thresholds across all existing funds.
- [ ] Establish a 7-year record-keeping policy for all VA transaction trails.
- [ ] Develop a "Client Suitability" assessment framework for discretionary accounts.
- [ ] Prepare an incident response plan for potential "material non-compliance" reporting.
- Appendices/Attachments Summary:
- Schedule 1: Lists existing SFC/HKMA codes/guidelines (e.g., Code of Conduct, AML Guidelines) that apply to VA activities.
- Schedule 2: Imposes specific rules for discretionary account management, such as mandatory knowledge assessments and suitability requirements for retail clients.
- Schedule 3 & 4: Detail risk management techniques (counterparty/cybersecurity) and mandatory risk disclosure examples (price volatility, custody risk, legal uncertainty) to be provided to investors.