- The “hard start” approach could force compliant firms to cease operations.
- The HKSFPA recommends a 6–12 month grace period for applicants.
- The association also raised concerns about the proposed CARF reporting framework.
Hong Kong’s plan to tighten oversight of firms dealing with digital assets has raised concerns that crypto service providers could be forced to suspend operations.
A warning comes from the Hong Kong Securities and Futures Professionals Association (HKSFPA), which highlighted risks tied to implementing new licensing requirements without a transition period.
The government is consulting on extending the city’s regulatory scope to cover virtual asset trading, advisory services, and fund management.
While these proposals aim to close oversight gaps, they could leave operating firms in limbo if licenses are required from day one.
Concerns about a hard start date
The HKSFPA’s primary concern is that a “hard start” would require every market participant to hold a valid license before the new framework takes effect.
Without any transition period, firms awaiting approval might have to stop offering regulated services even if they have already submitted applications.
This would affect businesses that are lawfully operating under current rules but have not yet secured licensing under the new system.
There is worry that licensing reviews could take time, especially given the complexities involved, creating regulatory bottlenecks and disrupting the sector.
Association pushes for a delay
In a formal submission, the HKSFPA requested a six- to twelve-month grace period for businesses that apply before the new regime begins.
The group believes this interval would allow firms to continue operating while the Securities and Futures Commission (SFC) processes applications.
Without such a buffer, even companies with robust compliance practices could face forced closures due to administrative delays.
The application process itself is not quick, and the risk of backlog is significant, particularly as multiple firms prepare to enter the newly regulated environment.
Expanded oversight still under review
The proposed rules remain under consultation and no effective date has been confirmed.
If implemented, they would represent a shift in how virtual asset services are regulated in Hong Kong, extending beyond trading platforms to include advisory and fund-related services.
The HKSFPA supports Hong Kong’s objective of strengthening regulatory standards for digital assets.
However, it warns that overly tight timelines could deter institutional participation and slow the adoption of compliant crypto infrastructure.
A second warning highlights implementation risks
In a separate consultation submission this week, the HKSFPA also raised concerns about the planned Crypto-Asset Reporting Framework (CARF), being introduced in line with OECD recommendations.
While the association supports the policy direction, it cautioned that inflexible implementation could create unintended operational and legal risks.
Taken together, these submissions reflect a broader industry message: regulation is welcome, but implementation should not create barriers that push firms out of the market.