Briefing: a digital-asset fund structured Cyprus

Digital-asset funds built across two jurisdictions face a question that arises before the first investor dollar is committed: which regulator looks at this structure, and under which law? When the management entity sits in Hong Kong and the fund vehicle incorporates in Cyprus, the answer is not one or the other. It is both – in sequence, and with different consequences for each layer.

A digital-asset fund structured through Hong Kong and Cyprus must satisfy the licensing and anti-money laundering (AML) obligations of each jurisdiction independently. In Hong Kong, the mandatory virtual-asset trading platform licensing regime – administered by the Securities and Futures Commission under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance – commenced on 1 June 2023. In Cyprus, the fund vehicle and its manager engage the EU regulatory perimeter, including the Alternative Investment Fund Managers Directive and the Markets in Crypto-Assets Regulation. Neither regime waives the other.

This briefing sets out what the dual-jurisdiction structure means in practice, who it reaches, and the steps a manager should take now.

What Has Sharpened the Risk for This Corridor

Enforcement posture in both jurisdictions has tightened. Regulators are no longer treating the fund-management layer and the trading or custody layer as separate compliance questions. They are looking at the structure as a whole.

In Hong Kong, where a virtual asset constitutes a "security" or "futures contract" under the Securities and Futures Ordinance, a second licensing layer applies on top of the virtual-asset trading platform regime. Fund managers with any discretionary or advisory function over a portfolio containing such assets are within scope. The compliance question is not whether the manager holds a licence somewhere in the group. It is whether the Hong Kong-nexus activity is covered by a Hong Kong-issued authorisation.

Cyprus introduced its own transposition of EU crypto-asset rules with the commencement of the Markets in Crypto-Assets Regulation across the EU perimeter. For a Cyprus fund vehicle, that means the fund's MiCA authorisation (the EU-level licence for crypto-asset service providers, now in force across member states) and the manager's registration or authorisation under the Alternative Investment Fund Managers Directive both require active compliance programmes. A Cyprus entity that relies on a Hong Kong group-level licence to satisfy its own EU obligations is exposed.

The cross-border interface sharpens a specific enforcement risk: if the Hong Kong manager routes orders or holds client virtual assets through the Cyprus vehicle without both sides holding the relevant authorisations, neither jurisdiction will treat the other's licence as a substitute. Regulatory gap analysis is the first document this structure needs.

Who This Affects Across the Hong Kong–Cyprus Corridor

The structure is common enough to describe a defined category: a fund promoted to non-US international investors, with management infrastructure in Hong Kong and a regulated fund entity in Cyprus accessing the EU passport. The pattern appears across family-office-sponsored vehicles, manager-of-one structures, and third-party managed funds with a Greater China origination focus.

Any manager operating in this way should assess three questions without delay. First, does the Hong Kong entity's activity fall within the licensing perimeter of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance and, separately, the Securities and Futures Ordinance? Second, does the Cyprus vehicle hold, or need to apply for, authorisation under MiCA and registration under the Alternative Investment Fund Managers Directive? Third, are the AML programmes on both sides – including customer due diligence and the FATF travel rule (the Financial Action Task Force requirement to transmit originator and beneficiary information with virtual-asset transfers) – aligned, documented, and current?

In our cross-border practice, we see managers who have completed one side of this analysis and assumed the other side follows. It does not. The Cyprus regulator – the Cyprus Securities and Exchange Commission – applies its own supervisory standards independently. The SFC in Hong Kong does the same.

Stablecoin issuance adds a further dimension. Where the fund structure involves a fiat-referenced stablecoin, the Hong Kong Monetary Authority's licensing regime for fiat-referenced stablecoin issuers, which commenced in 2025, may apply to the Hong Kong layer. Managers should verify the current perimeter and commencement position before taking a view.

The Immediate Action for Managers in This Structure

Three steps are immediate. First, map the regulatory perimeter for each entity in the structure: the Hong Kong manager, any Hong Kong trading or custody subsidiary, and the Cyprus fund vehicle and its manager entity. Do not assume the group-level compliance programme covers each regulated person. It must cover each one specifically.

Second, review the AML programme on both sides against the current guidance of the relevant regulator. In Hong Kong, the SFC's AML guidelines apply to licensed virtual-asset service providers. In Cyprus, the CySEC's guidance tracks the EU AML directives. The FATF travel rule applies to virtual-asset transfers on both sides.

Third, document the inter-entity arrangements – management agreements, delegation arrangements, custody terms – against the licensing and conduct-of-business requirements of both regulators. Gaps in documentation are where enforcement begins.

Our desk advises on the cross-border interface between the Hong Kong regulatory regime and offshore and EU jurisdictions, and we work alongside locally licensed firms on matters of Hong Kong law. For matters engaging the Tech & Web3 practice, including fund structuring across the Hong Kong–Cyprus corridor, the analysis starts with the licensing and AML position. For background on how cross-border data and technology agreements interact with this kind of structure, see our matter note on cross-border SaaS or data agreements touching the BVI and our analysis of cross-border SaaS or data agreements touching the United States.

To discuss the licensing and compliance position for a digital-asset fund structured through Hong Kong and Cyprus, write to us at info@lockhartyip.com.

Frequently asked questions

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

The core documentation set spans both jurisdictions. For the Hong Kong layer: licensing applications or exemption analysis under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance and the Securities and Futures Ordinance, AML policies aligned to SFC guidance, and inter-entity management and delegation agreements. For the Cyprus layer: MiCA authorisation documents, Alternative Investment Fund Managers Directive registration materials, and fund constitutional documents. The two sets must be cross-referenced, not prepared in isolation.

What does the route look like for a digital-asset fund structured through Hong Kong and Cyprus?

The structuring route has two parallel tracks running simultaneously. The Hong Kong track covers the licensing perimeter analysis, AML programme build, and any SFC application or registration. The Cyprus track covers MiCA authorisation through CySEC, AIFMD registration, and fund documentation. Both tracks must reach a compliant state before the fund accepts investors or executes virtual-asset transactions. The order of steps and the sequencing of regulatory submissions is the point where most structures run into delay.

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

Yes. The Hong Kong licensing and AML obligations are governed by Hong Kong law and administered by Hong Kong regulators. A Cyprus-only adviser will not have sight of the SFC's current supervisory expectations, the licensing perimeter under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, or the interaction with the Securities and Futures Ordinance where the assets are securities. International counsel with a Hong Kong desk, working alongside locally licensed firms, is the appropriate structure for a fund of this kind.

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

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

What Has Sharpened the Risk for This Corridor

Who This Affects Across the Hong Kong–Cyprus Corridor

The Immediate Action for Managers in This Structure

Frequently asked questions

Speak with Lockhart & Yip

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