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

Digital-asset funds that combine a Hong Kong management company with a British Virgin Islands (BVI, the principal offshore common-law fund-formation jurisdiction for Asia-facing structures) are now operating inside two active licensing regimes at once. The Hong Kong regime tightened materially when mandatory licensing of centralised virtual-asset trading platforms commenced on 1 June 2023, and the BVI's own economic-substance requirements continue to evolve. Principals who committed to this corridor without resolving the Hong Kong licensing question are sitting on an open compliance exposure.

A digital-asset fund structured through Hong Kong and the BVI must satisfy Hong Kong's mandatory virtual-asset licensing regime – administered by the Securities and Futures Commission under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance – before it manages, markets or routes any trading activity through the Hong Kong entity. The BVI layer does not neutralise that obligation.

This briefing sets out what changed, who it affects, and the steps that should be resolved now.

What changed – and when the window started closing

The mandatory licensing regime for virtual-asset trading platforms (VATP regime) in Hong Kong commenced on 1 June 2023. From that date, operating a centralised virtual-asset trading platform in or from Hong Kong without a licence became a regulated activity under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance. The Securities and Futures Commission is the licensing authority.

The compliance perimeter is wider than many foreign principals assume. A Hong Kong-incorporated management entity, or one that directs fund activity from Hong Kong, is capable of triggering the licensing obligation – regardless of where the fund vehicle itself is incorporated. Routing through a BVI fund company does not move the licensing question offshore. Where the managed assets include tokens that are also "securities" or "futures contracts" under the Securities and Futures Ordinance, a separate SFC licensing obligation under that statute applies in parallel.

The AML obligations travel with the licensing question. VATPs are subject to full customer due diligence requirements and the FATF travel rule (the Financial Action Task Force standard requiring that originator and beneficiary information accompany virtual-asset transfers). Firms that have not mapped their transfer flows against the travel rule are carrying a documented gap in their compliance file.

For fiat-referenced stablecoins, a Hong Kong Monetary Authority licensing regime for issuers commenced in 2025. Funds holding or distributing stablecoins should verify the current commencement date and perimeter before acting. The position is moving.

Who this affects across the Hong Kong–BVI corridor

The immediate exposure sits with any structure that uses a Hong Kong entity – whether as investment manager, sub-adviser, marketing agent, or trading desk – above or alongside a BVI fund vehicle. The fund company itself sits offshore, but the management and trading nexus is in Hong Kong. That is where the regulator applies.

Three categories of principal should act now. First, groups that incorporated a Hong Kong management entity ahead of the June 2023 commencement date and have not since assessed their licensing position. Second, funds that have grown their assets under management to a point where regulatory engagement with the SFC is required regardless of initial-launch assumptions. Third, BVI-incorporated fund vehicles whose constitutional documents contemplate Hong Kong-based management but whose principals have not taken formal licensing advice.

The cross-border element adds a second layer of complexity that is often underestimated. The BVI entity must satisfy its own economic-substance requirements – broadly, demonstrating that relevant income-generating activity occurs in the BVI. A fund structure that pushes all real activity into Hong Kong for convenience may create a substance gap in the BVI at the same time as it creates a licensing exposure in Hong Kong. Both exposures move on different clocks and are managed by different regulators.

In our cross-border tech and Web3 practice, we regularly advise Hong Kong–BVI fund structures where the licensing question and the substance question have been assessed in isolation rather than as a paired analysis. Resolving one without the other produces an incomplete compliance position.

What to do now

Three steps should happen in sequence. The first is a licensing-position assessment: map every activity performed by or through the Hong Kong entity against the VATP regime and the Securities and Futures Ordinance to determine whether a licence is required, which category applies, and whether any transitional or exempted position is available. Verify the current commencement date and perimeter for stablecoin-related activity separately.

The second step is an AML and travel-rule review. The compliance file should document the customer due-diligence framework, the transfer-flow mapping against the travel rule, and the record-keeping procedures. These are examined by the SFC as part of any licensing review and should be in order before the application is filed.

The third step is a BVI substance review. This is coordinated with the licensing analysis, not sequenced after it. Where the BVI fund vehicle needs to demonstrate substance, the allocation of management activity between Hong Kong and the BVI requires a deliberate structural decision – not a default.

The window for managing these exposures in an orderly way is open. Waiting for a regulatory inquiry to prompt the review is not a position most fund managers should choose.

For a structured assessment of your Hong Kong–BVI fund structure's licensing and AML position, contact us at info@lockhartyip.com.

For a full picture of how the Tech & Web3 licensing and AML regime works in Hong Kong, see our Tech & Web3 practice overview. Further analysis of the AML obligations that apply to virtual-asset service providers is available in our AML obligations for virtual-asset service providers analysis. For related regulatory engagement questions in the fintech space, see our briefing on fintech entity regulatory engagement in Hong Kong.

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