Update: a digital-asset fund structured Mainland

A digital-asset fund that sits across the Hong Kong–Mainland China corridor now faces a materially changed licensing and AML environment on both sides of the boundary. The Securities and Futures Commission (SFC) mandatory virtual-asset trading platform licensing regime, in force since 1 June 2023, applies to centralised platforms dealing in virtual assets – and fund structures that route execution or custody through a licensed or licensable entity carry direct regulatory consequences. Funds that have not mapped their exposure to this regime, and to the parallel obligations under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, should treat this briefing as a prompt to act.

The cross-border dimension adds a second layer. Mainland China maintains a distinct and more restrictive posture on virtual-asset activity. A fund structured to hold or trade digital assets through a Hong Kong entity while managing capital flows from Mainland sources must reconcile two regimes that do not align. The sequencing of that reconciliation – which side of the boundary carries the regulated function, and which AML regime governs each stage – determines both the fund's lawful operating perimeter and its enforcement exposure.

What changed and why it matters now

The SFC's mandatory licensing regime for centralised virtual-asset trading platforms changed the baseline position. Before that regime, many fund structures were built on an assumption that the regulatory perimeter was narrower. That assumption no longer holds.

A fund structured through Hong Kong that routes any execution function through a platform – or that itself meets the definition of a centralised platform – is inside the licensing perimeter unless a specific exclusion applies. The governing instrument is the Anti-Money Laundering and Counter-Terrorist Financing Ordinance as amended to establish the VATP (virtual-asset trading platform) licensing regime. The SFC is the licensing authority. Where a virtual asset in the fund's portfolio is a "security" or "futures contract" under Hong Kong law, additional SFC licensing under the Securities and Futures Ordinance also applies. Two licensing analyses may therefore run in parallel.

The AML and travel rule (the FATF-derived obligation requiring originator and beneficiary information to accompany virtual-asset transfers) now apply to licensed VATPs. A fund that interacts with a licensed VATP – for execution, custody, or settlement – inherits the compliance interface of that relationship. Fund managers in our cross-border practice are seeing this point missed at the structuring stage, typically because the VATP licensing analysis is treated as the platform's problem rather than the fund's.

On the Mainland side, the position on virtual-asset trading remains restrictive. Capital raised from Mainland-connected investors, or structured through entities with Mainland nexus, carries a distinct set of considerations. The governing principle is that the regulated function must sit entirely within the Hong Kong entity and must not involve Mainland-regulated activities. Where that line falls on a given fund's facts is a matter requiring careful legal analysis, not assumption.

Who is affected across the Hong Kong–Mainland corridor

Any of the following positions warrants an immediate review.

A fund with a Hong Kong general partner or manager that executes trades through a platform that is, or should be, licensed by the SFC as a VATP.
A fund structured with a Hong Kong holding or trading entity and capital commitments from Mainland-connected limited partners or investors.
A structure built before 1 June 2023 that has not been reviewed for alignment with the VATP regime and the updated AML obligations.
A fund that holds virtual assets characterised as securities or futures under Hong Kong law and has not assessed the SFC licensing overlay.
Any manager that has not documented its travel-rule compliance position for virtual-asset transfers touching its Hong Kong-regulated relationships.

The enforcement angle is direct. A fund operating outside the licensing perimeter, or failing to maintain the required AML controls, faces regulatory action from the SFC. The broader question – whether the fund's cross-border design creates enforcement exposure on the Mainland side – requires a separate analysis grounded in the actual capital flows and entity map.

In our practice, we regularly advise fund managers who built structures in an earlier regulatory environment and have not revisited the design since the VATP regime took effect. The gap between an inherited structure and the current rules is where enforcement risk concentrates.

The immediate action

Three steps should happen now, in sequence.

First, map the fund's regulatory footprint under the SFC VATP licensing regime and, where virtual assets in the portfolio may be securities or futures, under the Securities and Futures Ordinance. The analysis should identify whether the fund itself, its manager, or any platform it uses is inside the licensing perimeter – and whether any current activity is unlicensed.

Second, review AML compliance and the travel rule. The Anti-Money Laundering and Counter-Terrorist Financing Ordinance sets the obligations. The review should cover customer due diligence, transaction monitoring, and the documentation of virtual-asset transfers at each stage of the fund's operational chain.

Third, assess the Mainland nexus. Where capital, management, or distribution has a Mainland connection, the structure must be tested against the relevant Mainland restrictions. The governing question is whether the regulated functions are cleanly ring-fenced within Hong Kong and whether the capital flows between the two sides are documented in a way that withstands regulatory scrutiny on both.

The sequence matters. Licensing must be addressed before AML is finalised, and the cross-border analysis must follow the entity map, not precede it.

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

For a fuller treatment of our work in this area, see our Tech & Web3 practice, our guide on digital-asset funds structured through Hong Kong and the United States, and our earlier briefing on the virtual-asset trading platform licence in Hong Kong.

Frequently asked questions

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

The answer turns on the entity map and the regulated function. A fund with a Hong Kong manager or general partner is subject to Hong Kong law for its regulated activities, including SFC licensing and AML obligations under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance. Where capital flows or management decisions have a Mainland nexus, Mainland rules may apply separately to those elements. The two regimes do not automatically align, and the cross-border interface requires a jurisdiction-specific analysis for each function in the structure.

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

The core documents depend on the stage and the regulatory route. For SFC licensing purposes, a VATP applicant or a fund manager with a licensing obligation will need to prepare a regulatory business plan, AML and compliance manuals, and evidence of the fit-and-proper position of responsible officers. The fund's constitutional documents, subscription agreements, and disclosure materials must also reflect the applicable regulatory perimeter. Where the structure has a Mainland dimension, additional documentation of the cross-border capital flows and management arrangements will be required. Parties should verify the current document requirements with the SFC before filing.

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

The first step is a regulatory mapping exercise: identifying whether the fund, its manager, or any platform it uses falls within the SFC's VATP licensing perimeter under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, and whether any virtual assets in the portfolio are securities or futures under Hong Kong law. That mapping determines the licensing obligations, the AML framework that applies, and whether the Mainland nexus creates a separate regulatory exposure. Acting without that map is the most common source of enforcement risk in structures of this kind.

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 Mainland China

What changed and why it matters now

Who is affected across the Hong Kong–Mainland corridor

The immediate action

Frequently asked questions

Speak with Lockhart & Yip

Related