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

A digital-asset fund operating across Hong Kong and the UAE sits at the intersection of two of the most active regulatory reform programmes in the asset-management world. Both jurisdictions moved decisively in the period from 2023 onward to bring virtual-asset activity under mandatory licensing. Both claim to be open for business. Yet the interaction between their regimes – different licensing authorities, different AML standards, different treatment of fund structures versus trading platforms – creates a cross-border compliance picture that is meaningfully more complex than either jurisdiction presents alone. For a fund principal or general counsel reviewing the position now, the question is not whether the regimes apply. It is which regime applies first, which obligations overlap, and where the residual exposure sits.

A digital-asset fund structured through Hong Kong and the UAE is currently subject to two parallel mandatory licensing regimes. In Hong Kong, the Securities and Futures Commission administers licensing for virtual-asset trading platforms and applies the Securities and Futures Ordinance where assets qualify as securities. In the UAE, licensing turns on the specific free-zone or onshore seat chosen: the Abu Dhabi Global Market Financial Services Regulatory Authority or the Dubai Financial Services Authority for the financial-centre seats, or the Virtual Assets Regulatory Authority for Dubai onshore activity. Neither regime defers to the other. A fund that is active in both locations must map its obligations under each, and must treat the AML and travel-rule requirements as cumulative, not alternative.

This analysis addresses four questions: what is commercially at stake; how the governing rules in each jurisdiction operate; what the cross-border interface actually produces in practice; and where, on a frank read of the current position, the regulatory exposure sits.

What is commercially at stake for a cross-border digital-asset fund?

The commercial logic of pairing Hong Kong and the UAE is straightforward. Hong Kong offers a common-law court system, proximity to Mainland Chinese capital flows, an established asset-management industry, and a licensing regime for virtual-asset trading platforms that has been operational since 1 June 2023. The UAE offers a tax-neutral environment, access to Gulf and South Asian capital, a growing institutional-investor base, and – crucially – three distinct licensing jurisdictions within a single political territory: Abu Dhabi Global Market (ADGM), the Dubai International Financial Centre (DIFC) and the Virtual Assets Regulatory Authority (VARA) for mainland Dubai.

For a fund sponsor, this pairing is attractive because it addresses two capital pools simultaneously. A feeder structure can accept Gulf and international investors at the UAE level while routing investment exposure through a Hong Kong-based manager or sub-adviser who handles Greater China and Asia-Pacific positions. The structure works. The question is what it costs in regulatory overhead, and whether that overhead has been accurately accounted for in the fund's compliance budget and legal architecture.

In our cross-border practice, we see the commercial calculus consistently underestimating one element: the moment the fund – or the manager – engages in any activity that looks like operating or managing a virtual-asset trading platform in Hong Kong, the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Hong Kong's primary AML statute, which also carries the virtual-asset trading platform licensing regime) applies with full force. The same logic operates in the UAE: a fund that executes trades through a platform it operates or controls, rather than through a licensed third-party venue, is in a different regulatory category than a fund that merely holds positions.

How does Hong Kong's licensing regime operate for virtual-asset fund structures?

Hong Kong's mandatory licensing regime for virtual-asset trading platforms – VATPs (centralised platforms that operate a virtual-asset exchange) – commenced on 1 June 2023 under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, with the Securities and Futures Commission as the licensing authority. The regime targets platforms, not funds. But the boundary is not always clean.

A fund that manages a portfolio of virtual assets and executes through third-party licensed platforms is, in the ordinary case, operating as a fund manager. Where it holds assets that qualify as "securities" or "futures contracts" under the Securities and Futures Ordinance – a category that encompasses certain tokens depending on their structure and rights – the fund manager is subject to Type 9 asset-management licensing under that Ordinance. This is a separate and pre-existing track from the VATP regime. The critical analytical step for any fund structured through Hong Kong is to characterise each asset in the portfolio: does it fall within the SFO definition, or is it a virtual asset that sits outside that definition but inside the VATP regime? The answer can differ asset by asset, and it can change as a token's economic structure evolves.

AML obligations apply in both tracks. A Hong Kong-licensed manager handling virtual assets must comply with the customer due diligence and record-keeping requirements under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, and with the FATF travel rule for virtual-asset transfers. The travel rule – which requires originator and beneficiary information to accompany virtual-asset transfers above a threshold – applies to VATPs and, in practice, shapes the fund's operational workflows even where the fund itself is not the VATP. Investors, counterparties and custodians must all be assessed against these requirements.

The sequence above describes the standard position. Your matter turns on the assets actually held, the activities actually conducted, and whether any element of the structure tips the fund into VATP territory – which is where the licensing question becomes acute.

To discuss how the Hong Kong licensing analysis applies to your fund's specific asset mix and operational model, contact info@lockhartyip.com.

What does the UAE regulatory picture look like for the same structure?

The UAE does not have a single national virtual-asset regulator. It has three licensing frameworks operating in parallel, and the one that applies depends entirely on where the fund or manager is incorporated and where it conducts its activities.

The Abu Dhabi Global Market, an international financial centre (a common-law free zone operating under its own statute book, separate from UAE federal law), regulates virtual assets through the Financial Services Regulatory Authority. Funds and managers established in the ADGM and handling virtual assets that are "investments" under the ADGM regime require authorisation from the FSRA. The ADGM common-law system is modelled on English law, which gives it a familiar structure for practitioners accustomed to Hong Kong or English legal instruments.

The Dubai International Financial Centre operates on the same international-financial-centre model. Its regulator, the Dubai Financial Services Authority, has its own virtual-asset regime. A fund established in the DIFC is governed by DFSA rules, not UAE federal law and not ADGM rules. The two free zones are not interchangeable, and a licence in one does not confer authority to operate in the other.

For funds operating in mainland Dubai – outside either free zone – the Virtual Assets Regulatory Authority is the competent body. VARA operates under UAE federal and Dubai emirate-level authority and applies to entities that conduct virtual-asset activities from mainland Dubai. Its regime covers a range of activities including management, exchange, transfer and custody of virtual assets.

The practical consequence for a Hong Kong–UAE fund is that the UAE leg of the structure requires a precise answer to one threshold question: which jurisdiction within the UAE is the fund actually using, and is the fund conducting the activity that triggers licensing in that jurisdiction? A fund that merely maintains a registered office in the DIFC while all management discretion is exercised in Hong Kong is in a different position than a fund that has a DIFC-based general partner making investment decisions. Regulators in both jurisdictions look at substance, not form.

Where does the cross-border interface actually bite?

The cross-border interface between Hong Kong and the UAE produces three specific friction points that our desk sees recurrently.

The first is dual-licensing exposure. A fund manager who is licensed in one jurisdiction and operates in both does not automatically satisfy the other jurisdiction's requirements. Hong Kong's SFC licence does not discharge a UAE obligation, and a DFSA authorisation does not satisfy the SFC. Where management functions are split – investment strategy in Hong Kong, investor relations in the UAE – each function must be mapped against the licensing perimeter in the jurisdiction where it occurs. This mapping is rarely done rigorously at the fund-formation stage, and the gap becomes visible only when a regulator enquires or when the fund seeks to on-board a large institutional investor who conducts its own regulatory-compliance review.

The second friction point is AML and source-of-funds documentation. Both Hong Kong and the UAE apply FATF-standard AML requirements. In practice, they apply them to overlapping sets of transactions. A transfer from a UAE investor into a Hong Kong-managed fund will be subject to source-of-funds and customer due diligence checks by the Hong Kong manager. It will simultaneously have been subject to AML checks at the UAE feeder level. The two sets of records need to be consistent and mutually accessible in the event of a regulatory enquiry by either authority. In our experience, the documentation chains in cross-border digital-asset structures are frequently not aligned: the UAE feeder holds KYC records that the Hong Kong manager has not requested, and vice versa.

The third friction point is the travel rule. Where a transfer of virtual assets crosses from a UAE-based custodian to a Hong Kong-based platform, the travel-rule information must accompany the transfer in both directions. The operational implementation of this requirement depends on the technical capabilities of the custodians and platforms involved. Not all custodians in either jurisdiction have implemented the travel rule at the same level of maturity, and a mismatch between counterparties creates both a regulatory exposure and an operational bottleneck.

A mid-sized fund principal came to us in the second quarter of 2025 with precisely this configuration: a Cayman-incorporated fund, a Hong Kong-licensed sub-adviser, a DIFC-registered general partner, and a custodian in Abu Dhabi. The fund had been operating for over a year. The travel-rule implementation between the Abu Dhabi custodian and the Hong Kong sub-adviser's execution venues had never been formally tested. We identified three categories of transfers that had occurred without full travel-rule information being transmitted. The remediation involved both a documentation exercise and a change to the operational workflow between the custodian and the manager. The matter was resolved within a single quarter, but the cost – in management time and legal fees – was materially higher than the cost of building the workflow correctly at formation.

How do the two systems compare on enforcement posture?

Hong Kong and the UAE financial-centre regulators share a broadly similar enforcement philosophy: they have both signalled a preference for licensed, compliant operators and have taken action against unlicensed activity. But the enforcement mechanisms differ in important ways.

In Hong Kong, the Securities and Futures Commission has broad investigative powers, the ability to impose conditions on licences, and the capacity to refer matters to criminal prosecution. Enforcement in the virtual-asset space is still developing as the VATP regime matures, but the SFC has been consistent in communicating that operating a virtual-asset trading platform without a licence – or providing services to Hong Kong investors without appropriate authorisation – is a regulatory priority. The common-law court system means that enforcement decisions are subject to judicial review, and the Court of First Instance has an established body of practice on administrative and regulatory matters.

In the UAE financial centres, the FSRA and DFSA operate within their respective free-zone legal systems. Both are empowered to impose fines, withdraw authorisations, and issue public censures. VARA, operating in the mainland Dubai space, has its own enforcement toolkit. The common thread is that all three UAE-side frameworks treat unlicensed activity as a serious matter, and all three have moved during 2024 and 2025 to increase the intensity of their supervisory engagement with licensed firms.

For a cross-border fund, the enforcement risk is asymmetric in one specific way: a regulatory action in one jurisdiction does not automatically produce a consequence in the other, but it does produce an information-sharing risk. Both Hong Kong and the UAE financial-centre regulators have memoranda of understanding with their international counterparts. A regulatory concern raised in Abu Dhabi may trigger an enquiry that reaches the Hong Kong manager, and vice versa. Fund principals who treat the two jurisdictions as separate silos – managing compliance independently in each – are exposed to this information-sharing dynamic in a way that a fund with integrated compliance documentation is not.

If an earlier compliance filing or licensing application in either jurisdiction has produced an adverse response or a pending enquiry, a structured review can identify the points of exposure and the routes still open. Contact info@lockhartyip.com to discuss the position.

What do fund managers commonly miss in the Hong Kong–UAE configuration?

The most consistent gap we see is a failure to treat the fund's structure and the fund's activities as distinct questions that require separate regulatory analysis.

Structure – where the entities are incorporated, where the GP sits, what the constitutional documents say – is the starting point. But it is not determinative. In both Hong Kong and the UAE, regulatory obligations attach to activities, not to incorporation addresses. A Cayman fund with a Hong Kong sub-adviser that actively solicits Hong Kong-resident investors is conducting a regulated activity in Hong Kong, regardless of where the fund is incorporated. A DIFC-registered entity that conducts investment management from offices in London is conducting a regulated activity in the DIFC, and its staff who exercise discretion from London may need to be considered for the DIFC's own regulated-activity analysis.

A second gap is the assumption that a "fund" and a "platform" are mutually exclusive categories. In both jurisdictions, the boundary is drawn by reference to what the entity actually does, not what it calls itself. A fund that provides liquidity to other participants, that runs an order book, or that operates infrastructure through which third parties transact is likely to be engaging in activities that the relevant regulator would characterise as platform activity. This matters acutely where the fund's strategy involves market-making or treasury management of a stablecoin or a tokenised instrument.

Stablecoins introduce a further dimension. The Hong Kong Monetary Authority has developed a licensing regime for fiat-referenced stablecoin issuers, with a regime that commenced in 2025 – parties should verify the current commencement date and perimeter before acting. A fund that holds, issues, or redeems a fiat-referenced stablecoin as part of its treasury or settlement operations needs to assess whether that activity engages the HKMA regime independently of the SFC track. In the UAE, both the ADGM and VARA frameworks address stablecoins, and the treatment differs between them.

A further point that foreign counsel frequently miss: Hong Kong implements United Nations sanctions and does not give domestic effect to unilateral sanctions measures of other states. This is a factual and legal position that matters for a digital-asset fund with counterparties in jurisdictions that are subject to unilateral measures by the United States or the European Union but are not subject to UN sanctions. The compliance analysis for those counterparties must be conducted against the Hong Kong legal position, not against a US or EU standard that does not apply in Hong Kong. The UAE has its own sanctions implementation architecture, which also requires separate analysis. Neither jurisdiction's sanctions position should be assumed to mirror the other's.

The structural decision: where should the fund's centre of gravity sit?

The question of where to place the fund's primary regulatory centre of gravity is, ultimately, a strategic decision shaped by investor base, asset mix, management team location and long-term capital flows. It is not a decision that can be made by optimising for the lightest regulatory touch in the short term, because both Hong Kong and the UAE have signalled that their regimes will become more intensive, not less.

For a fund whose investors are predominantly in the Gulf and whose portfolio is weighted toward global digital-asset markets with some Greater China exposure, the UAE financial-centre seat is likely to be the primary regulatory relationship, with the Hong Kong sub-adviser managing the Asia-Pacific execution track. For a fund whose capital is substantially from Asia and whose portfolio contains PRC-adjacent positions, the Hong Kong licensing relationship is likely to be primary, with a UAE structure serving the Gulf investor base.

In either case, the structure should be designed so that the primary regulator can see the full activity of the fund – across both jurisdictions – and so that the AML records, the travel-rule implementation and the investor documentation are consistent from one side to the other. A structure that is opaque to the primary regulator is a structure that is generating undisclosed regulatory exposure.

A second scenario our desk handles is the fund that started in one jurisdiction and expanded into the other without a formal regulatory review of the expanded activity. An Asia-based manager with an established Hong Kong track that opened a UAE feeder for Gulf investors in late 2024 or 2025 may not have formally assessed whether the UAE feeder's management arrangements require ADGM, DFSA or VARA authorisation. The fact that the core fund is Hong Kong-licensed does not answer the UAE question.

The governing instruments in both jurisdictions are clear on this point: they regulate activities conducted within their perimeter, not entities that are licensed elsewhere. A fund principal who treats a foreign licence as a passport to the UAE – or vice versa – is operating on an incorrect premise. Passporting as it exists in the EU context does not have a direct analogue in either the Hong Kong or UAE virtual-asset space.

For a structured assessment of where the licensing and AML obligations fall across your specific Hong Kong–UAE fund configuration, write to us at info@lockhartyip.com.

Our read: where the risk sits now

The regulatory exposure in a Hong Kong–UAE digital-asset fund structure is not hypothetical. It is a function of three cumulative factors: the maturity of the licensing regimes, the intensity of supervisory activity, and the structural choices made at fund formation.

On licensing maturity, both Hong Kong and the UAE financial-centre frameworks are now sufficiently developed that the transitional period – during which regulators focused primarily on getting applicants to apply – is over. Supervisory attention has shifted to what licensed firms are actually doing. For unlicensed firms conducting regulated activities, the tolerance period has ended. Funds that were formed before the current regimes took full effect and have not formally assessed their position since are carrying the highest exposure.

On supervisory intensity, both the SFC and the UAE financial-centre regulators conducted a more active programme of thematic reviews and on-site visits in 2024 and 2025 than in the immediately preceding period. The AML and travel-rule dimensions are receiving particular scrutiny, because they are verifiable: regulators can request transaction records and test whether the required information was transmitted. Funds that cannot produce clean travel-rule records for their transfers are exposed to an enforcement conversation that begins with a documentation failure and may not end there.

On structural choices, the risk is concentrated in three specific configurations. First, funds that operate or control a virtual-asset trading function – even informally, within a treasury or market-making strategy – without assessing whether that function requires VATP licensing in Hong Kong or its equivalent in the UAE. Second, funds that have split management functions across the two jurisdictions without formally mapping each function against the licensing perimeter of the jurisdiction where it occurs. Third, funds that have not implemented the travel rule operationally and cannot demonstrate that they have done so on request.

The positive read is also real. A fund that has addressed these three points – that has a clear characterisation of its assets and activities in each jurisdiction, a licensing position that matches the activities conducted, and a documented AML and travel-rule workflow – is well-positioned relative to the market. Both regulators have stated that they want to support well-structured, compliant operators. The licensing burden, while real, is manageable for a fund of genuine scale. The regulatory cost of getting the structure right is lower than the regulatory cost of getting it wrong.

Our practice sits at the intersection of the two regimes. We regularly advise fund managers and their counsel on the licensing characterisation, the AML documentation architecture and the structural decisions that determine where the obligations fall. The work is analytical first – mapping activities to regulatory categories – before it is transactional. That sequence matters, because a structure built before the analysis is done tends to produce the compliance problems described in this article.

For practitioners and principals working through the same terrain from a different starting point, our analysis of digital-asset fund structures in the Hong Kong–CIS corridor is available at digital-asset fund structured through Hong Kong and the CIS. The licensing and AML dimensions overlap, and the structural logic in both analyses is complementary.

Related practices

• Tech & Web3 – virtual-asset licensing, AML compliance and fund structure across jurisdictions
• Sanctions & AML – counterparty review, source-of-funds documentation and compliance architecture

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