Update: a digital-asset fund structured Cyprus

Two licensing regimes now govern the same digital-asset fund. A structure that places the operating entity in Hong Kong and the feeder or holding entity in Cyprus must satisfy both – and the gap between them is where most cross-border funds stall.

A digital-asset fund structured through Hong Kong and Cyprus sits at the intersection of Hong Kong's mandatory virtual-asset trading platform licensing regime, which commenced 1 June 2023 under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, and Cyprus's own EU-derived requirements under the Markets in Crypto-Assets framework. The governing regulator on the Hong Kong side is the Securities and Futures Commission; the Cyprus side answers to the Cyprus Securities and Exchange Commission. Neither authority accepts the other's licence as a substitute.

This briefing addresses three questions practitioners are raising with us now: what the structural trigger is, who sits in the affected corridor, and what the immediate action looks like.

What changed – and why it matters for the Hong Kong–Cyprus corridor

Hong Kong's virtual-asset trading platform, or VATP (a centralised exchange or custodian of virtual assets), must hold a licence issued by the Securities and Futures Commission. That requirement has been in force since 1 June 2023. It is not confined to retail-facing platforms. A fund structure that routes trading, custody or management through a Hong Kong entity and meets the statutory perimeter is caught – regardless of whether the end-investors are institutional.

Where a virtual asset also qualifies as a "security" or "futures contract" under the Securities and Futures Ordinance, a separate licence under that Ordinance is required in addition. Two licences, one entity – that sequencing is not always appreciated at the point of structuring.

On the Cyprus side, the Markets in Crypto-Assets Regulation (MiCA) – the European Union's harmonised regime for crypto-asset service providers, in force across EU member states including Cyprus – governs the Cypriot feeder or fund vehicle. MiCA introduced passporting rights that do not extend outside the EU. The Hong Kong VATP licence does not travel to Cyprus; the MiCA authorisation does not travel to Hong Kong. A fund operating in both must hold both, or restructure the function allocation between the two entities.

The structural complexity trigger is acute when a fund consolidates custody, trading and portfolio management in a single group without clearly assigning those functions to the entity that holds the corresponding licence in each jurisdiction.

Who is affected across the corridor

The following categories appear regularly in our cross-border practice and are directly in scope.

Digital-asset fund managers using a Hong Kong management company above a Cyprus Alternative Investment Fund (AIF) – a collective investment vehicle regulated under Cyprus and EU alternative-investment fund rules – as the fund vehicle for European investor access.
Groups that incorporated a Cyprus holding entity before MiCA came into force and have not reviewed its licensing position since.
Funds that route execution or custody through a Hong Kong affiliate without a formal service agreement that allocates the licensed function to the licensed entity.
Venture and liquid-token funds that hold assets classified as securities in one jurisdiction and as commodity-like tokens in the other – a classification that changes the licence type required in each.

The travel rule (the FATF-derived requirement to transmit originator and beneficiary information with virtual-asset transfers) applies to VATPs in Hong Kong and to crypto-asset service providers in Cyprus. A transfer between the two group entities is a regulated transfer. Customer due diligence and source-of-funds documentation must be consistent across both legs. In our experience, the point of inconsistency is almost always the intra-group transfer rather than the external leg.

The sequence above describes the standard position. Your matter turns on the documents, the licences actually held, the jurisdictions engaged, and the function-allocation between the two entities – which is where the structure is resolved or where it fails.

To map the licensing and AML position for your Hong Kong–Cyprus fund structure, contact info@lockhartyip.com.

Immediate action for affected fund structures

Three steps apply in sequence.

First, map every function – trading, custody, portfolio management, transfer agency – to the entity that performs it, and confirm that entity holds the corresponding licence in its jurisdiction. Where the function sits in a Hong Kong entity, the SFC is the relevant authority. Where it sits in Cyprus, the Cyprus SEC under MiCA is the relevant authority. The mapping must be documented, not assumed.

Second, review the intra-group agreements. A service agreement between a licensed Hong Kong manager and a Cyprus AIF must reflect the actual function allocation. If the agreement predates the current licensing perimeter in either jurisdiction, it requires revision. An agreement that names a function without the corresponding licensed entity performing it creates regulatory exposure on both sides.

Third, review the AML and travel-rule position for intra-group transfers. The Anti-Money Laundering and Counter-Terrorist Financing Ordinance and the corresponding MiCA obligations both apply. The compliance file for each transfer must satisfy both regimes – originator and beneficiary data, source-of-funds, customer due diligence records.

If an earlier structure or registration produced a stalled regulatory position or an adverse response from either authority, the function-allocation map and the intra-group agreements are the first places to examine. The route back to a compliant structure usually runs through those documents.

To discuss how the VATP licensing and MiCA regimes apply to your cross-border fund structure, write to info@lockhartyip.com.

For a fuller account of our approach to digital-asset structures, see our Tech & Web3 practice. Related briefings addressing adjacent corridors are available at digital-asset fund structured through Hong Kong and CIS. For data-transfer and privacy considerations affecting Asia-facing platforms, see our data transfer and privacy terms guide.

Related practices

Tech & Web3 – licensing, AML obligations and virtual-asset structuring across jurisdictions
Sanctions & AML – counterparty review, source-of-funds and compliance file preparation

Frequently asked questions

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

A fund structured through Hong Kong and Cyprus requires, at minimum, the licensing applications and supporting materials for each jurisdiction – the SFC VATP application on the Hong Kong side and the MiCA authorisation file for the Cyprus entity. Beyond the regulatory filings, the structure requires intra-group service agreements that accurately reflect function allocation, AML policies consistent with both regimes, travel-rule procedures for intra-group transfers, and customer due diligence records satisfying both the Anti-Money Laundering and Counter-Terrorist Financing Ordinance and the MiCA requirements. Parties should verify the current documentary requirements with each authority before filing.

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

Separate advisers with knowledge of each jurisdiction are required. The SFC's VATP licensing regime is a Hong Kong regulatory process; the MiCA authorisation is a Cyprus and EU regulatory process. An adviser focused on one side cannot substitute for counsel on the other. International counsel coordinates the structural and cross-border elements – function allocation, intra-group agreements, AML consistency – while locally licensed firms handle the jurisdiction-specific regulatory filings. Lockhart & Yip works alongside locally licensed firms in both jurisdictions for matters of local law.

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

No single jurisdiction's law governs the entire structure. The Hong Kong entity is subject to Hong Kong law, including the Anti-Money Laundering and Counter-Terrorist Financing Ordinance and, where relevant, the Securities and Futures Ordinance. The Cyprus entity is subject to Cyprus law and, through it, EU regulation including MiCA. The governing law of the fund documents – the fund agreement, the service agreements, the custody arrangements – is a matter of contract and should be addressed expressly at the structuring stage. Misalignment between the contractual governing law and the regulatory requirements of each entity is a recurring source of structural risk.

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 Cyprus

What changed – and why it matters for the Hong Kong–Cyprus corridor

Who is affected across the corridor

Immediate action for affected fund structures

Frequently asked questions

Speak with Lockhart & Yip

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