Where a digital-asset fund structured through Hong Kong and the BVI stands now

A digital-asset fund built on the Hong Kong–BVI axis is not a theoretical exercise. It is the working structure for a significant portion of the Asian crypto-asset management market, and the regulatory environment pressing on it has shifted materially. The question is no longer whether to engage with the licensing and compliance requirements that now apply. The question is whether the structure as it currently stands is adequate – or whether its vulnerabilities have become enforcement-grade risks.

A digital-asset fund structured through Hong Kong and the BVI occupies a dual regulatory perimeter: the fund vehicle in the BVI sits within a common-law offshore jurisdiction with its own substance and economic-substance requirements, while the Hong Kong management or advisory entity – if it operates a centralised virtual-asset trading platform or deals in securities-type virtual assets – falls within the mandatory licensing regime administered by the Securities and Futures Commission. The governing instruments are the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, under which the VATP licensing regime commenced on 1 June 2023, and, where the digital assets in scope are securities or futures contracts, the Securities and Futures Ordinance. The interaction of those two regimes with BVI company law and economic-substance obligations is where the structural risk concentrates.

This analysis works through the commercial stakes, the governing instruments on each side of the structure, the cross-border interface where the two legal systems meet, the AML and enforcement exposure that our desk currently sees most frequently, and the direction of travel. It is directed at fund managers, in-house counsel and principals who already have a structure in place and need a clear read on where it sits today.

What is actually at stake commercially?

Digital-asset funds structured through Hong Kong and the BVI are, in most cases, a response to a genuine commercial problem: how to access Mainland-adjacent deal flow and investor capital while maintaining an offshore fund vehicle that institutional and professional investors recognise.

The BVI company or limited partnership serves as the fund entity. It issues interests to investors, holds portfolio assets – typically through sub-accounts, custody arrangements or on-chain wallets – and is administered by a BVI-registered manager or general partner. The Hong Kong entity sits above, below or alongside that structure in a variety of configurations. It might be the investment manager providing discretionary portfolio management services. It might be an advisory entity providing non-discretionary investment advice. It might be the operator of a trading interface through which the fund executes transactions. Each of those configurations attracts a different regulatory characterisation in Hong Kong.

What is at stake is not abstract. A fund structure that sits outside the correct licensing perimeter faces suspension of operations, investor-redemption pressure, potential liability of the management entity to Hong Kong regulators, and reputational damage that is very difficult to contain once a regulatory action is made public. In our cross-border practice, we have seen fund structures that were designed to avoid the licensing regime encounter exactly those consequences as the regime matured. The commercial downside is not theoretical.

At the same time, a structure that engages with the Hong Kong licensing regime correctly gains something: credibility with institutional investors who require regulated counterparties, access to banking relationships that have become increasingly difficult to maintain without a regulatory anchor, and a defensible position in the event of a dispute with investors or counterparties.

The governing instruments: what applies on each side?

The Hong Kong licensing position for digital-asset fund management turns on two instruments and the interaction between them. Under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, a centralised virtual-asset trading platform – a VATP (a platform that provides trading services in virtual assets to the public, operating a central limit order book or equivalent) – requires a licence from the Securities and Futures Commission. That regime is the dedicated crypto-market structure layer. It sits alongside, and does not replace, the Securities and Futures Ordinance, which continues to apply where a virtual asset qualifies as a "security" or "futures contract" under Hong Kong law.

The practical consequence is that many digital-asset fund managers face a two-layer licensing analysis before they engage with the market. If the fund trades securities-type tokens, type-9 asset management licensing under the Securities and Futures Ordinance is likely to apply. If the fund operates or connects to a centralised trading interface meeting the VATP definition, the VATP licensing regime also engages. The two regimes impose different obligations, different capital requirements, and different AML/KYC standards – though the AML obligations under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance and those imposed on SFO-licensed managers share a common statutory foundation.

On the BVI side, the fund entity is subject to BVI company law under the BVI Business Companies Act and, where the economic-substance regime applies to its activities, it must maintain genuine substance in the BVI. Economic substance for a fund manager or holding entity is a real compliance burden, not a formality. It requires demonstrable decision-making on the island, adequate personnel or outsourced arrangements, and appropriate expenditure. Where the BVI entity is treated as merely a holding shell with all substance and management sitting in Hong Kong, both the BVI economic-substance analysis and the Hong Kong tax-residence analysis are affected.

There is also the AML dimension on the BVI side. BVI-registered funds and managers dealing in virtual assets are subject to BVI AML regulation, which has been progressively tightened in line with FATF standards. Counsel on our desk regularly encounter structures where the Hong Kong and BVI AML obligations have been treated as separate and unrelated compliance exercises, when in fact the counterparty-due-diligence files and the transaction monitoring outputs need to be consistent across the structure – because an enforcement action in one jurisdiction will draw on records from both.

How does the cross-border interface between Hong Kong and the BVI bite?

The Hong Kong–BVI interface is not a seamless handoff. It is a structural seam, and it is where the most consequential enforcement risks concentrate.

Consider the most common configuration: a BVI fund vehicle managed by a Hong Kong entity that holds discretionary authority over the fund's digital-asset portfolio. The Hong Kong entity is the regulated anchor of the structure. It holds, or must hold, the relevant licences. It is the entity whose AML programme the Securities and Futures Commission and, where applicable, the Hong Kong Monetary Authority will examine. But the assets – and frequently the on-chain wallets, sub-custody arrangements and smart-contract positions – sit in the name of the BVI entity or are controlled through it.

This creates a document-and-control question that regulators in both jurisdictions are now actively asking: where does investment decision-making actually happen? If the Hong Kong entity is licensed but exercises no genuine control – if it rubber-stamps instructions generated elsewhere, or if the BVI general partner has retained effective control of the portfolio – the Hong Kong licence does not provide the regulatory cover the structure is designed to achieve. It may in fact create a worse outcome: a licensed entity that is in breach of its licence conditions because it has misrepresented its role.

In our cross-border practice, we have acted on restructuring instructions where a fund manager realised, following a regulatory inquiry, that its management agreement, custody documentation and decision-making records were inconsistent with the licensed-entity narrative it had presented. Re-aligning those documents under scrutiny is a harder exercise than getting them right at the outset.

The cross-border enforcement angle adds another dimension. A Hong Kong regulatory action against the management entity can extend, in practice, to the BVI fund vehicle through asset-preservation orders, disclosure orders, and – where the fund holds assets through Hong Kong-connected accounts or exchanges – direct restraint. The Mainland–BVI enforcement route is less direct, but where Mainland investors are participants in the fund, the exposure to Mainland proceedings should not be discounted. Hong Kong's status as a common-law system with a well-functioning Court of First Instance and Court of Appeal means that interim relief obtained in Hong Kong is enforceable in practice and can move quickly.

For a deeper treatment of the cross-border structuring considerations that arise in digital-asset and technology contexts, our analysis at our guide to digital-asset fund structuring through Hong Kong sets out the sequence in more detail.

What foreign counsel frequently misread about the Hong Kong–BVI position

The misreading our desk encounters most often is this: the assumption that because the fund vehicle is BVI-domiciled and the investors are non-Hong-Kong persons, Hong Kong regulation has limited reach into the structure.

That assumption was never fully correct, and it is now actively wrong. The trigger for Hong Kong jurisdiction over the management entity is not the domicile of the fund or its investors. It is the nature of the activity conducted from Hong Kong – or, increasingly, conducted in a way that connects to the Hong Kong market or uses Hong Kong-regulated infrastructure. A Hong Kong entity managing a BVI fund that holds virtual assets, and doing so from Hong Kong, is conducting regulated activity in Hong Kong regardless of where the fund is domiciled or where its investors are located.

A second misreading concerns the FATF travel rule for virtual-asset transfers. The travel rule – the obligation to transmit originator and beneficiary information with virtual-asset transfers above the applicable threshold – applies to VATPs licensed or operating in Hong Kong. Where a Hong Kong-connected entity is a participant in a transfer chain, the travel-rule obligations attach. Foreign counsel who have designed the structure around travel-rule avoidance through jurisdictional routing should be aware that the Securities and Futures Commission and the Financial Intelligence Unit take the FATF travel rule seriously, and that non-compliance is an AML deficiency, not a minor procedural gap.

A third misreading is the treatment of the Pillar Two minimum top-up tax. For in-scope multinational enterprise groups – those with consolidated revenues at or above the EUR 750 million threshold – the Hong Kong minimum top-up tax applies to fiscal years beginning on or after 1 January 2025. A digital-asset fund management group that has grown into that threshold through institutional capital raises may have moved into Pillar Two scope without an internal tax review having flagged it. The interaction of the BVI entity's economic-substance position with the group's Pillar Two analysis is a point that an international tax adviser and an international counsel on the structure need to address together.

The contextual bridge here matters. The sequence above describes the structural position as a general matter. Your structure turns on the actual management agreements, the custody and wallet-control arrangements, the investor base, the asset types traded, and the licensing history of the entities involved. Those are the documents that determine the outcome.

For a preliminary read on your structure and the enforcement route, email info@lockhartyip.com.

AML obligations and the regulator that actually applies

The AML obligations that apply to a Hong Kong–BVI digital-asset fund structure are not light-touch. They are, in practice, the most operationally demanding part of the compliance burden – and the part most likely to produce an enforcement action if handled superficially.

Under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, licensed VATPs and SFO-licensed entities dealing in virtual assets are subject to full customer due-diligence obligations. These include identification and verification of investors, beneficial-ownership analysis, source-of-funds and source-of-wealth assessment for higher-risk clients, and ongoing transaction monitoring. The Securities and Futures Commission is the licensing authority for VATPs and has issued detailed AML guidelines that operate alongside the statutory requirements. Those guidelines are not aspirational. Departure from them is treated as a compliance failure, and the Commission has demonstrated a willingness to use its supervisory powers to require remediation and, in appropriate cases, to impose conditions or take enforcement action.

The investor base of a digital-asset fund structured through the BVI introduces specific AML complexity. Investors may be located in multiple jurisdictions, may include structures – trusts, foundations, other funds – that require look-through analysis, and may have source-of-wealth documentation that is difficult to verify across jurisdictions. Where the fund accepts subscriptions in virtual assets rather than fiat currency, the source-of-funds analysis becomes more demanding: on-chain transaction tracing is a tool that regulators and compliance teams now routinely apply, and a fund manager who cannot explain the provenance of in-kind subscriptions is in a difficult position.

The regulator that actually applies in the first instance is the Securities and Futures Commission in Hong Kong, acting on the licensed Hong Kong entity. The BVI Financial Services Commission regulates the BVI fund and manager separately. Where an enforcement action is commenced in Hong Kong, the SFC will seek records from the BVI entity through the management entity's obligations – and through international regulatory cooperation channels where necessary. Treating the two regulatory relationships as independent silos is a structural mistake that our desk regularly identifies in fund reviews.

A mid-sized Asian digital-asset fund came to us in early 2025 after the SFC queried its AML programme in the course of a routine supervisory visit. The fund's Hong Kong manager had maintained its KYC files on Hong Kong-based investors but had delegated investor onboarding for BVI-based subscription agreements to the BVI administrator without ensuring that the delegation agreement required equivalent standards. The gap was identifiable and remediable – but only after a significant period of remediation work, including a retrospective review of investor files. The fund's relationship with its prime broker was strained during the period. Getting the delegation agreement right at the outset would have taken a fraction of the effort.

The decision matrix: structure, risk and the current moment

The structural options for a digital-asset fund with a Hong Kong–BVI footprint are not unlimited. They resolve into a relatively small number of configurations, each with a distinct risk profile.

A fund where the Hong Kong entity holds a VATP licence or a type-9 SFO licence, manages the portfolio from Hong Kong, and the BVI fund vehicle is the passive holding entity for investors – this is the baseline compliant structure. The risk sits in execution: are the licence conditions being met? Is the BVI entity maintaining adequate substance? Are the AML files consistent across both entities? Is the custody arrangement clearly documented? These are operational risks, not structural ones, and they are manageable with proper compliance infrastructure.

A fund where the Hong Kong entity is characterised as providing "advisory" services only, with investment discretion retained by a BVI general partner or offshore entity, and where the Hong Kong entity is not licensed – this configuration carries material enforcement risk. The characterisation of advisory-only is fact-specific and is frequently challenged by the SFC where the advisory entity is in practice directing the portfolio. If the facts support a discretionary management characterisation, the absence of a licence is a serious deficiency.

A fund where no Hong Kong entity holds a licence, the trading activity is conducted through a non-Hong-Kong platform, and the Hong Kong connection is limited to marketing or investor relations – this requires careful analysis. Marketing of collective investment schemes in Hong Kong to Hong Kong investors may itself engage the Securities and Futures Ordinance. The "no nexus" argument is available in some fact patterns but should not be assumed.

A fund where the structure was put in place before the VATP licensing regime commenced in June 2023 and has not been reviewed since – this is the configuration our desk encounters most often in restructuring instructions. The regulatory environment has moved materially since the pre-licensing period, and a structure that was adequate in 2022 may have become inadequate without any deliberate change in the fund's operations.

The direction of travel is clearly toward greater regulatory intensity. The Hong Kong Monetary Authority's licensing regime for fiat-referenced stablecoin issuers, which commenced in 2025, adds another layer for funds that hold or trade stablecoins as a meaningful part of their portfolio. The precise perimeter of that regime should be verified against the current position before any structural analysis is finalised.

Our Tech & Web3 practice covers the full range of licensing, AML and cross-border structuring questions that arise in this space.

If an earlier filing, structure or enforcement attempt has produced an adverse or stalled result, a second read can identify the strategic error and the routes still open. Write to info@lockhartyip.com.

Where the risk sits now: our read

The risk in a Hong Kong–BVI digital-asset fund structure has migrated from the theoretical to the operational. It is no longer a question of whether a licensing or AML regime applies. It is a question of whether the documentation, the internal controls and the delegation arrangements are adequate to withstand regulatory scrutiny – and whether they are consistent across the two sides of the structure.

Our read on the current risk profile has three components.

First, the licensing risk has concentrated. The Securities and Futures Commission has moved from a regime-building phase to an active supervisory posture. The gap between "licensed but non-compliant" and "unlicensed and exposed" is narrowing in practical terms: both attract regulatory attention, but the licensed entity has a compliance framework and a supervisory relationship that can be used to remediate. The unlicensed entity has neither.

Second, the AML risk has become the primary enforcement vector. In the cross-border context, AML deficiencies are more likely to produce enforcement action than licensing technical breaches, because they attract the attention of multiple regulators simultaneously – the SFC, the HKMA where stablecoins are involved, and potentially international regulatory bodies through FATF-coordination channels. A digital-asset fund with a defensible licensing position but weak AML controls is not, in practice, in a safe position.

Third, the BVI substance requirement has become a material risk in its own right. Where the BVI entity has been treated as a passive conduit – with investment management, AML, investor relations and operational decisions all made from Hong Kong – the BVI economic-substance analysis is unlikely to be satisfied. That has consequences not only for BVI regulatory compliance but for the Hong Kong tax-residence analysis of the BVI entity, and, where Pillar Two applies, for the group's global minimum tax position.

The interaction of those three risk components is what makes the current moment a genuine inflection point for fund managers who have not reviewed their structures since the licensing regime commenced. The regulatory window for self-remediation – where a fund identifies and corrects deficiencies before a supervisory inquiry begins – is always easier to use than the window available after an inquiry has opened.

For questions about how the current regulatory position applies to your structure, our analysis at our cross-border technology and data agreement guide addresses adjacent structuring issues that frequently arise alongside fund-level questions.

What the objection about "offshore insulation" misses

A common position taken by fund managers who have not engaged with the Hong Kong licensing regime is that the BVI structure provides insulation: the fund is offshore, the investors are offshore, and the Hong Kong entity is only a conduit. The argument has intuitive appeal. It does not withstand regulatory scrutiny.

The Securities and Futures Commission's jurisdiction attaches to activity, not to the nationality or domicile of the entities involved. Where a Hong Kong entity is conducting regulated activity in Hong Kong – whether that is managing a portfolio, providing investment advice, or operating a trading interface – the licensing and AML obligations apply. The fact that the ultimate fund vehicle is in the BVI does not change the regulatory characterisation of what the Hong Kong entity is doing.

Offshore insulation is a concept that has a valid application in certain contexts. It is not a valid application where the management activity is physically and operationally conducted in Hong Kong. Counsel on our desk regularly identify this misunderstanding as the foundational error in structures that are subsequently found to be non-compliant. The cost of correcting it retrospectively – including the cost of any regulatory engagement that has already occurred on the basis of the incorrect characterisation – is materially greater than the cost of a proper initial analysis.

The point is directly relevant to the enforcement risk that the structure faces. An enforcement action by the SFC against a Hong Kong entity is not limited by the fact that the fund's assets are held offshore. The Commission can seek disclosure of records, impose conditions on the licensed entity, and – through the court system – obtain orders that have practical effect over the fund's operations. The BVI insulation argument, in the enforcement context, is weaker than many fund managers assume.

Related practices

• Sanctions & AML – cross-border AML compliance, counterparty due diligence and FATF travel-rule obligations
• Holding Structures – BVI and offshore fund-vehicle structuring, economic substance and cross-border management arrangements

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This publication is general information and does not constitute legal advice. For advice on your situation, contact info@lockhartyip.com.