Grounded Ingenuity | Refined Results

November 24th 2023
By Timothy Loh and Sally Lau
The October 2023 joint circular issued by the Securities and Futures Commission and the Hong Kong Monetary Authority on intermediaries virtual asset-related activities revamps the regulatory regime governing virtual asset (“VA”) related dealing, advisory and asset management activities, generally requiring intermediaries to conduct their VA related activities in a manner consistent with their securities and futures contract related activities. However, the circular continues to set higher standards in some areas, including by restricting the provision of margin financing and the use of client assets to generate returns. For more information on the circular or the current regulatory requirements for VA activities, please contact one of our Fintech & DLT lawyers.

On October 20, 2023, the Securities and Futures Commission (“SFC”) and the Hong Kong Monetary Authority (“HKMA”) issued a Joint Circular on Intermediaries’ Virtual Asset-Related Activities, updating their guidance on how intermediaries licensed or registered with the SFC should approach the distribution of virtual asset related products, the provision of virtual asset dealing services and the provision of asset management services over virtual assets. This latest circular will take effect on January 20, 2023 and will supersede the January 28, 2022 joint circular on intermediaries’ virtual asset-related activities.


VA related products are likely to be regarded as complex products.

Such products, if not traded on regulated exchanges specified by the SFC, should be distributed only to professional investors. Clients dealing in such VA related products, other than institutional and qualified corporate professional investors, must demonstrate adequate virtual asset knowledge. In this regard, attendance at courses, current or previous work experience, or prior trading experience regarding VA or VA related products may provide the basis for such knowledge.

VA related products traded on regulated exchanges specified by the SFC are not limited to professional investors but will likely be regarded as derivatives and thus, distribution should comply with derivative as well as complex product requirements. Intermediaries should provide information and warning statements and risk disclosure.


Intermediaries must partner with an SFC licensed VA trading platform to provide VA dealing services, whether by way of introduction or by way of omnibus account, and should conduct their VA dealing services as if it were a Type 1 (dealing in securities) regulated activity, even if it does not amount under the law to such a regulated activity.

In providing VA dealing services on an omnibus account basis, intermediaries will be subject to licensing or registration conditions, including a condition to comply with the Terms and Conditions for Licensed Corporations or Registered Institutions Providing VA Dealing Services Under an Omnibus Account Arrangements (“Omnibus VA Dealing Terms”). The Omnibus VA Dealing Terms broadly seek to impose Type 1 like regulation on VA dealing activities but prohibit margin financing and the making of any arrangements which use client assets to generate returns for clients or other parties. They further require intermediaries to maintain 12 months of working capital on a rolling basis.

In the context of dealing with retail clients, the Omnibus VA Dealing Terms require intermediaries to assess client VA knowledge and risk tolerance, to provide training if knowledge is inadequate, to set limits commensurate with each client’s financial situation and to only deal with SFC licensed platforms who can offer services to retail investors (i.e. are not subject to a condition that they can only serve professional investors). To this extent, these terms are more paternalistic than what is required in traditional finance.

These Omnibus VA Dealing Terms further require intermediaries to custody VAs through SFC licensed platforms or authorized financial institutions, thus broadly mirroring custody arrangements for client securities and monies, and to comply with anti-money laundering guidelines.

When providing advice to retail clients, intermediaries should ensure that the virtual assets recommended are of high liquidity and are available through SFC licensed platforms.


Asset managers who manage virtual assets comprising 10% or more of the gross value of the portfolio are subject to additional requirements. As with VA dealing services, these requirements will be implemented through a licensing and registration condition to comply with the Terms and Conditions for Licensed Corporations or Registered Institutions which Manage Portfolios that Invest in Virtual Assets (“VA Portfolio Management Terms”). In broad terms, the VA Portfolio Management Terms seek to replicate regulatory requirements applicable to the management of portfolio of securities and futures contracts even though VAs may fall outside the definition of “securities” or “futures contracts”.

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