Where a digital-asset fund structured UK

The commercial question is not theoretical. A fund vehicle that sits across two common-law systems – Hong Kong and the United Kingdom – and holds or trades digital assets faces a licensing matrix that neither jurisdiction has yet fully resolved, while both have moved fast enough to create real exposure for structures that were built before the current rules took shape. The risk is not hypothetical future regulation. It is the gap between what was permissible two years ago and what is required now.

A digital-asset fund structured through Hong Kong and the United Kingdom must satisfy the licensing and anti-money laundering obligations of each jurisdiction independently, with no automatic recognition flowing in either direction. In Hong Kong, the mandatory virtual-asset trading platform licensing regime under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance commenced 1 June 2023, with the Securities and Futures Commission as the licensing authority. In the United Kingdom, digital-asset activities that constitute regulated financial services fall under the Financial Services and Markets Act and the Financial Conduct Authority's registration and authorisation perimeter. A fund that operates across both centres carries a dual compliance burden that must be mapped at the entity level, not the fund level.

The sections below work through the commercial stakes, the governing instruments in each system, the points where the two regimes interact and where they diverge, and our read on where the live risk sits in mid-2028.

What is actually at stake commercially?

A dual-jurisdiction digital-asset fund is not an academic exercise. It is a structure that typically emerges for one of three commercial reasons: investor base distribution (some investors are in Asia, some in Europe), regulatory arbitrage that has since closed, or operational convenience where the fund manager is physically present in both cities. The stakes are different in each case, and the risk profile follows.

For a fund with a Hong Kong management entity and a UK-registered feeder or parallel vehicle, the question is which entity does what. If the Hong Kong entity executes trades on a centralised virtual-asset trading platform, that activity falls squarely within the licensing perimeter of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance. If the UK entity advises, arranges or manages investments in crypto-assets that qualify as specified investments under the Financial Services and Markets Act, the Financial Conduct Authority's authorisation requirement applies separately. The two licensing gates are additive, not alternative.

What makes this commercially significant is the consequence of getting the mapping wrong. Operating without the required licence in Hong Kong carries criminal exposure under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance. Operating without FCA authorisation in the United Kingdom engages the general prohibition under the Financial Services and Markets Act. Neither regulator currently treats the other's licence as a substitute. A fund that assumed its Hong Kong licence covered its UK-facing activities – or vice versa – is sitting on a live compliance problem.

In our cross-border practice, we see this most acutely in funds that were structured before either regime hardened. The manager obtained a Hong Kong Securities and Futures Ordinance licence for the securities-classified assets, assumed the digital-asset overlay would follow, and built a UK entity for European distribution without a separate crypto-asset analysis. That assumption does not hold.

How does the governing framework apply on each side?

In Hong Kong, the licensing architecture for digital assets runs on two tracks. Where a virtual asset is a security or futures contract within the Securities and Futures Ordinance, the existing securities-licensing regime applies and the Securities and Futures Commission is the supervisor. Where a virtual asset falls outside that definition – sometimes called a non-securities token – the Anti-Money Laundering and Counter-Terrorist Financing Ordinance licensing regime for centralised virtual-asset trading platforms applies instead. A fund that holds both types must be prepared for both tracks to engage simultaneously.

The 2024 HKIAC Administered Arbitration Rules are not the relevant instrument here, but the broader point about institutional clarity is. The SFC's supervisory approach to virtual-asset fund managers has tightened through successive circulars, and the current expectation is that a fund manager seeking to manage portfolios with more than a de minimis allocation to non-securities virtual assets must engage with the licensing question directly. "We hold mostly securities tokens" is not a sustainable position if the portfolio in practice includes material non-securities exposure.

In the United Kingdom, the position as at mid-2028 requires careful verification because the regulatory perimeter has moved materially since the Financial Services and Markets Act 2023 expanded the regulated-activities framework to bring crypto-assets within the Financial Conduct Authority's remit. A digital-asset fund manager in the United Kingdom that arranges, manages or advises on crypto-asset investments must hold the appropriate FCA authorisation or qualify for an exemption. The FCA's AML registration regime – which applied to crypto-asset businesses from 2020 – was a precursor, not a substitute, for the broader authorisation requirement.

The critical difference between the two systems is the asset-classification methodology. Hong Kong uses the SFO definition of "securities" and "futures contract" as the primary gating question, with a residual catch by the AMLO licensing regime. The United Kingdom uses a specified-investments list under the Financial Services and Markets Act, and the extent to which particular crypto-assets fall within that list turns on their specific legal characteristics. A token that is a security in both systems is the easy case. A token that is a security in one system but not the other is where dual-jurisdiction funds run into structural difficulty.

Where do the two systems interact – and where do they diverge?

There is no mutual-recognition arrangement between Hong Kong and the United Kingdom for virtual-asset or crypto-asset licences. That is the starting point. It means a fund entity licensed by the SFC carries no automatic permission to conduct regulated activities in the United Kingdom, and an FCA-authorised entity carries no automatic permission to manage virtual-asset portfolios through Hong Kong. Each regulatory relationship must be built independently.

The interaction point that matters most in practice is anti-money laundering. Both Hong Kong and the United Kingdom have implemented the Financial Action Task Force recommendations on virtual assets, including the travel rule for virtual-asset transfers. The FATF travel rule requires that identifying information travels with virtual-asset transfers above the applicable threshold. In Hong Kong, the obligation falls on licensed virtual-asset trading platforms under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance. In the United Kingdom, the equivalent obligation falls under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations. A fund that moves assets between Hong Kong and UK custody arrangements must have a travel-rule compliance protocol that satisfies both sets of rules simultaneously.

Where the two systems diverge most sharply is on stablecoins. Hong Kong has moved to a dedicated licensing regime for fiat-referenced stablecoin issuers under the HKMA's framework, which commenced in 2025. The United Kingdom has taken a different regulatory path, treating fiat-backed stablecoins as e-money where the issuer is in scope of the Electronic Money Regulations, with a separate regime under the Financial Services and Markets Act for crypto-assets used as a means of payment. A fund that uses stablecoins as a settlement or collateral mechanism – which is common in DeFi-adjacent strategies – faces different regulatory treatment of the same instrument depending on which side of the structure is touching it.

The divergence on investor protections is also material. Hong Kong's SFC regime for professional investors applies a specific definition and requires a documented assessment. The UK's FCA regime uses "high net worth individual" and "sophisticated investor" as its core categories, with certification requirements. A fund marketing to investors in both jurisdictions must run a parallel investor-classification process, with documentation that satisfies both regimes.

Consider a practical scenario. A fund domiciled in the Cayman Islands, managed through a Hong Kong entity holding an SFC Type 9 asset-management licence, with a UK sub-adviser providing research and strategy input on the crypto-asset allocation. The Hong Kong entity is the discretionary manager. The UK entity has FCA authorisation for investment management and arranging. The fund invests in a mix of securities tokens and non-securities tokens, and uses a USDC position for cash management between trades. The AML file must satisfy both the SFC's guidelines and the FCA's requirements. The travel-rule protocol must work for transfers going in both directions. The USDC position engages the stablecoin questions in both systems. And the investor-classification documents must be prepared in a form that is valid under both regimes. None of that is insuperable. But none of it is automatic, and each element requires a specific cross-border analysis.

The sequence of steps – which entity does what, in which order, under which licence – is where the route is won or lost.

The sequence above describes the standard position. Your matter turns on the documents, the jurisdictions actually engaged, and the order of steps. For a structured assessment of your fund's cross-border licensing and AML position, write to us at info@lockhartyip.com.

What does the cross-border AML obligation actually require?

Anti-money laundering compliance in a dual-jurisdiction digital-asset fund is not a single exercise. It is two separate compliance programmes that must interlock without contradiction.

In Hong Kong, the Anti-Money Laundering and Counter-Terrorist Financing Ordinance sets the primary AML/CTF obligations for licensed entities, including licensed virtual-asset trading platforms and SFC-licensed fund managers with material virtual-asset exposure. The SFC's AML guidelines elaborate on the customer due-diligence, ongoing monitoring and suspicious-transaction reporting obligations. A fund manager that routes trades through a licensed VATP is not absolved of its own AML obligations – it must conduct its own CDD on the fund's investors and, where relevant, on the counterparties to its transactions.

In the United Kingdom, the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations impose equivalent obligations on FCA-authorised firms and on registered crypto-asset businesses. The FCA's financial-crime guide sets out the supervisory expectation. A UK sub-adviser or distribution entity is an in-scope business and must maintain its own AML programme regardless of what the Hong Kong manager has in place.

The travel rule is the most technically demanding element. Under both regimes, a virtual-asset transfer above the applicable threshold must carry the originator's and beneficiary's identifying information. The challenge for a dual-jurisdiction fund is that the counterparty on the other side of a transfer may be a virtual-asset service provider in a third jurisdiction – Singapore, the UAE, or a Cayman-domiciled custody vehicle – that has its own travel-rule implementation. The fund needs a compliance infrastructure that can receive and transmit travel-rule data in a format compatible with all of the relevant counterparties, not just the Hong Kong and UK sides.

In our cross-border practice, the most common AML gap in dual-jurisdiction digital-asset funds is not the CDD itself – most managers understand that part – but the beneficial-ownership mapping across the fund structure. A Hong Kong management entity that is itself owned by a holding company in a BVI structure, with investors in the fund that are themselves holding vehicles, must trace the beneficial ownership chain at every level. The SFC and FCA both expect to see that chain documented, and both will look through nominee arrangements that are not substantively explained.

What do foreign advisers get wrong about this structure?

The most common error is to treat the structure as a single-jurisdiction compliance problem. A fund manager that comes to this structure with only UK counsel, or only Hong Kong counsel, will receive an accurate description of one side but an incomplete picture of the cross-border interface. The points of divergence – asset classification, stablecoin treatment, investor-protection documentation, travel-rule protocol – are not visible from either jurisdiction alone.

The second common error is to assume that a securities licence in one jurisdiction covers the virtual-asset activities in the other. It does not. An SFC Type 9 licence is a Hong Kong instrument. FCA investment-management authorisation is a UK instrument. Neither licence crosses the boundary. If a fund entity with a UK FCA licence executes trades on a Hong Kong-licensed VATP through a Hong Kong management entity, the licensing analysis must be done for the Hong Kong entity independently of what the UK entity holds.

The third error – and this is where the greatest regulatory exposure now sits – is to treat the stablecoin position as a non-issue because the fund is not "in the stablecoin business". If the fund uses a fiat-referenced stablecoin for settlement or collateral, that usage may engage the licensing perimeter in one or both jurisdictions depending on the legal characterisation of the stablecoin and the capacity in which the fund entity is acting. The HKMA's regime for fiat-referenced stablecoin issuers commenced in 2025, and parties should verify the current commencement date and perimeter before acting. The UK position under the Financial Services and Markets Act is similarly evolving, and the position as at mid-2028 should be checked against current FCA guidance.

A fourth point, specific to the cross-border structure, is the substance question. Both the SFC and the FCA apply a substance test: the licensed entity must have genuine decision-making activity in its licensed jurisdiction, not merely a registered address. A Hong Kong management entity that makes all of its investment decisions from London – or a UK adviser that is in substance directing the Hong Kong-licensed entity – creates a regulatory risk in both jurisdictions simultaneously. The substance question has become more acute as both regulators have focused on substance over form in their supervisory reviews.

Where does the live risk sit now, and where is this heading?

Our read, based on the trajectory of both regimes through the first half of 2028, is that the greatest live risk for a dual-jurisdiction digital-asset fund is not the initial licensing question – most sophisticated fund managers have addressed that – but the ongoing compliance burden as both regimes continue to evolve. A fund that was fully compliant in mid-2026 may not be fully compliant now, because the perimeter has moved in both jurisdictions.

The specific areas of movement are: first, the broadening of the SFC's guidelines on how virtual-asset fund managers should treat non-securities tokens; second, the FCA's implementation of the expanded crypto-asset perimeter under the Financial Services and Markets Act 2023; third, the HKMA's stablecoin licensing regime, which was not in force when many current fund structures were built; and fourth, the travel-rule infrastructure requirements, which are still being operationalised across the virtual-asset service provider ecosystem.

Where this is heading is toward convergence on substance requirements. Both the SFC and the FCA are moving toward a model in which a licensed digital-asset business must demonstrate genuine operational presence, real decision-making, adequate systems and controls, and a documented compliance programme that is regularly tested. The era in which a fund could satisfy the licensing requirement with a minimal local presence and outsourced compliance is closing. That is not a prediction about future legislation; it is a description of the current supervisory posture of both regulators, expressed through their published expectations and enforcement signals.

For a fund that has not reviewed its compliance position since its initial licensing application, the question is not whether the rules have changed – they have – but whether the fund's structure and controls reflect the current requirements. If an earlier filing, structure or enforcement attempt produced an adverse or stalled result, a second read can identify the strategic error and the routes still open. Write to info@lockhartyip.com to discuss the position.

Decision matrix: which entity, which licence, which sequence?

The practical question for a fund manager reviewing this structure is how to map the regulatory obligations onto the entities actually being used. The answer depends on what each entity is doing, not on how the structure was designed to work on paper.

Situation A: the Hong Kong entity is the discretionary manager and executes trades on a centralised platform. The relevant instrument is the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (for non-securities virtual assets) and the Securities and Futures Ordinance (for securities tokens). The route is an SFC licence appropriate to the activity. The timing is set by the SFC's licensing process, which parties should verify with current SFC guidance. The risk is operating in advance of the licence, which carries criminal exposure under the Ordinance.

Situation B: the UK entity manages or advises on a crypto-asset portfolio. The relevant instrument is the Financial Services and Markets Act and the FCA's specified-investments framework. The route is FCA authorisation for investment management or arranging, with parallel AML registration or authorisation for the crypto-asset activities. The risk is the general prohibition under the Financial Services and Markets Act, which applies to regulated activities conducted without authorisation.

Situation C: both entities are involved – the UK entity provides strategy input and the Hong Kong entity executes. The cross-border question is which entity has discretion. If the UK entity has discretion over the virtual-asset allocation, the FCA authorisation requirement applies to it regardless of where execution occurs. If the Hong Kong entity has discretion, the SFC licensing requirement applies to it. The risk in this situation is that the allocation of discretion on paper does not match the reality of how decisions are made, and both regulators will look at the substance.

Situation D: the fund uses stablecoins for settlement. Both the HKMA and the FCA regimes are potentially engaged, depending on the characterisation of the stablecoin and the capacity in which the entity is acting. Parties should verify the current position in both jurisdictions before acting, because the stablecoin perimeters are recent and still being applied in practice.

Self-assessment: is your structure current?

A fund manager reviewing a dual-jurisdiction digital-asset structure should work through the following questions at the entity level, not the fund level.

Does each entity that conducts a licensable virtual-asset activity in Hong Kong or the United Kingdom hold the appropriate licence or authorisation from the relevant regulator?
Has the fund's allocation to non-securities virtual assets been reviewed against the current SFC expectations for virtual-asset fund managers?
Is the fund's use of stablecoins – for settlement, collateral or cash management – documented in terms of which entity is acting in which capacity, and has that documentation been reviewed against the current HKMA and FCA perimeters?
Does the AML programme satisfy both the SFC's guidelines and the FCA's financial-crime expectations independently?
Is the fund's travel-rule infrastructure operational for transfers to and from all material counterparties, including custody providers and trading platforms in third jurisdictions?
Is the beneficial-ownership mapping documented at all levels of the fund structure, including the management entity and any BVI or Cayman holding vehicles?
Does the investor-classification documentation satisfy both the SFC's professional-investor requirements and the FCA's investor-categorisation requirements for each investor?
Has the substance of decision-making in each licensed entity been reviewed against the current supervisory expectations of the SFC and the FCA?

A "no" or "uncertain" answer to any of these questions identifies a point of live regulatory exposure that should be addressed before the next investor admission, transfer of assets, or regulatory contact.

For a structured assessment of your digital-asset fund's cross-border licensing and AML position across Hong Kong and the United Kingdom, write to us at info@lockhartyip.com.

Related practices

Sanctions & AML – cross-border AML compliance and counterparty risk management for international groups
Holding Structures – structuring fund and holding vehicles across Hong Kong and offshore centres

Frequently asked questions

What is the first step in a digital-asset fund structured through Hong Kong and the United Kingdom?

The first step is a licensing mapping exercise at the entity level: identifying which entity in the structure is conducting which regulated activity in which jurisdiction, and whether that entity holds the appropriate licence or authorisation from the SFC, the FCA, or both. The Anti-Money Laundering and Counter-Terrorist Financing Ordinance, which commenced 1 June 2023, governs non-securities virtual-asset activities in Hong Kong; the Financial Services and Markets Act governs regulated crypto-asset activities in the United Kingdom. Both analyses must be completed before any fund activity commences.

What documents are needed for a digital-asset fund structured through Hong Kong and the United Kingdom?

The document set depends on the regulatory route in each jurisdiction, but at minimum includes the licensing or authorisation application for each entity conducting regulated activity, the fund's offering documents (reviewed against both jurisdictions' disclosure requirements), the AML policy and procedures manual tailored to the AMLO and FCA requirements, the travel-rule compliance protocol, the investor-classification documentation for each category of investor, and the beneficial-ownership map for the full fund structure. The specific form of each document should be verified against current SFC and FCA guidance before submission.

Do I need a Hong Kong adviser for a digital-asset fund structured through Hong Kong and the United Kingdom?

Yes. The SFC licensing analysis, the AMLO compliance programme and the cross-border mapping between the Hong Kong and UK positions require an adviser with direct experience of both regimes. UK counsel alone cannot accurately assess the SFC's current expectations for virtual-asset fund managers, the HKMA's stablecoin perimeter, or the interaction between the two systems on the travel rule and AML documentation. International counsel working alongside locally licensed Hong Kong firms provides the complete picture that a dual-jurisdiction structure requires.

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

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