Update: a digital-asset fund structured BVI

Digital-asset fund managers operating across the Hong Kong and BVI corridor are facing a sharper regulatory environment in mid-2028. The convergence of Hong Kong's mandatory licensing regime for virtual-asset trading platforms and the BVI's own economic-substance requirements means that fund structures assembled before 2023 may now carry unresolved compliance gaps. Those gaps attract regulatory exposure, not just administrative inconvenience.

A digital-asset fund using a Hong Kong-regulated entity alongside a BVI holding or feeder vehicle must satisfy the licensing and anti-money laundering (AML) obligations imposed by the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, with the Securities and Futures Commission (SFC) acting as the primary licensing authority for platform-facing activity in Hong Kong. Where the fund's interests constitute "securities" or "futures contracts" under Hong Kong law, Securities and Futures Ordinance requirements layer on top.

This briefing sets out what has changed, who it affects, and what the immediate steps are.

What Changed – and When

The mandatory licensing regime for centralised virtual-asset trading platforms (VATPs) commenced on 1 June 2023. Since that date, any platform carrying on the business of operating a VATP in Hong Kong requires an SFC licence under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance.

For fund structures, the relevant question is not always whether the fund itself is a VATP. The question is whether the fund's activity – including trading on licensed or unlicensed platforms, token issuance, or the management of virtual-asset portfolios on behalf of third parties – triggers a licensing or registration obligation under either the AMLO or the Securities and Futures Ordinance. Our desk regularly sees structures where that question has been left unanswered.

The BVI layer introduces a separate but related concern. The BVI economic-substance regime requires entities carrying on certain activities – including fund management – to demonstrate genuine substance in the jurisdiction. A BVI feeder or holding vehicle that nominally manages the digital-asset portfolio without meeting those substance tests faces its own regulatory exposure, quite apart from the Hong Kong position.

On the AML side, VATPs are subject to customer due diligence obligations and the FATF travel rule (the Financial Action Task Force requirement that originator and beneficiary information travel with virtual-asset transfers). A fund that routes transfers through a VATP without a documented travel-rule compliance procedure is exposed at the platform level, not just at the fund level.

Who Is Affected Across the Corridor

This briefing is relevant to any group that operates or invests through a structure combining a Hong Kong presence with a BVI incorporated entity, where the portfolio includes virtual assets. That covers a wide range of principals: fund sponsors, family offices with a digital-asset allocation, and operating groups that hold tokens through an offshore vehicle.

The most exposed structures are those assembled between 2019 and 2022 – before the VATP regime commenced – and not reviewed since. In our cross-border practice, we see these structures carrying three recurring gaps: no assessment of whether the Hong Kong entity's activity constitutes VATP or securities business; no AML policy updated to reflect travel-rule obligations; and no substance analysis of the BVI vehicle's role.

Funds with European or Middle Eastern investors face additional pressure. Investor due-diligence requests now routinely include questions about the regulatory standing of the management entity and the compliance posture of the platform through which assets are traded. An unresolved licensing question in the Hong Kong entity will surface in that process.

For further context on how cross-border technology and data arrangements interact with this regulatory position, see our briefing on cross-border SaaS and data agreements touching the UAE and our guide on cross-border SaaS and data agreements touching the Mainland. Our full Tech & Web3 practice covers the licensing, AML and structuring dimensions in detail.

What to Do Now

Three steps are immediate. First, assess whether the Hong Kong entity's activity falls within the VATP regime or the Securities and Futures Ordinance's perimeter. That assessment must be done at the activity level, not the entity level – the label on the structure does not determine the regulatory result. Second, review the AML and travel-rule compliance procedure against the current SFC and FATF standards. Third, map the BVI vehicle's role and confirm whether the economic-substance position is defensible.

Funds that have already engaged with the SFC on a licensing application should confirm whether any change in activity or counterparty arrangements requires notification to the regulator. The SFC's licensing conditions are entity-specific; a material change in the fund's trading activity or platform relationships may trigger a variation obligation.

The sequence of those steps matters. A licensing assessment that proceeds without a parallel AML review creates a gap that the SFC will identify. Our desk handles both analyses together, across the Hong Kong and BVI legs of the structure.

For a structured assessment of your fund's licensing and AML position across Hong Kong and the BVI, write to us at info@lockhartyip.com.

Frequently asked questions

Which jurisdiction's law applies to a digital-asset fund structured through Hong Kong and the BVI?

Both jurisdictions apply simultaneously, and neither displaces the other. The Hong Kong regulatory regime – principally the Anti-Money Laundering and Counter-Terrorist Financing Ordinance and, where applicable, the Securities and Futures Ordinance – governs activity carried on in or from Hong Kong. The BVI applies its own company law, economic-substance rules and regulatory requirements to the BVI vehicle. The fund documents will designate a governing law, but that choice does not alter the regulatory obligations imposed by either jurisdiction on the basis of activity or incorporation. Parties should map both sets of obligations at the outset.

What are the main risks in a digital-asset fund structured through Hong Kong and the BVI?

The principal risks are regulatory, AML and substance-related. In Hong Kong, operating a virtual-asset trading platform or managing a virtual-asset portfolio without the required SFC authorisation exposes the entity and its principals to enforcement action. On the AML side, failure to implement customer due diligence and travel-rule procedures creates compliance exposure at the platform and fund level. In the BVI, a vehicle that does not meet the economic-substance requirements for its declared activity faces penalties and, ultimately, strike-off. Structures assembled before the current regulatory regime commenced are most at risk.

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

The document set spans both legs of the structure. For the Hong Kong entity, the core materials are the licensing application or exemption analysis under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, the AML and travel-rule compliance manual, and the client-onboarding procedures. For the BVI vehicle, the economic-substance declaration and the fund constitutional documents are essential, alongside any investor subscription agreements and placement documentation. Where the fund interests are securities under Hong Kong law, offering documents must comply with Securities and Futures Ordinance disclosure requirements. Parties should verify the current document requirements with counsel before acting.

Speak with Lockhart & Yip

For a scoped view of your matter, contact info@lockhartyip.com. Discuss your matter →

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

Update: a digital-asset fund structured through Hong Kong and the BVI

What Changed – and When

Who Is Affected Across the Corridor

What to Do Now

Frequently asked questions

Speak with Lockhart & Yip

Related

Discuss this matter with us