Update: a digital-asset fund structured UAE

A digital-asset fund spanning Hong Kong and the UAE sits across two licensing regimes, two sets of AML (anti-money laundering) obligations and two regulators – and the sequence in which those obligations are met determines whether the fund can operate lawfully in either jurisdiction. The Hong Kong mandatory licensing regime for virtual-asset trading platforms (centralised exchanges and related service providers) under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance commenced on 1 June 2023, with the Securities and Futures Commission as licensing authority. Where a digital asset qualifies as a security, the Securities and Futures Ordinance applies in parallel. In the UAE, a separate regulatory perimeter – administered by the relevant financial-services authority in the applicable free zone or onshore jurisdiction – governs digital-asset activities independently of Hong Kong.

For fund promoters and managers running a dual-corridor structure, the two regimes do not harmonise automatically. Each must be addressed on its own terms, in the right order, before the fund accepts capital or executes trades in either market.

What the structural trigger is – and why it is appearing now

The trigger for most dual-corridor funds is the same: a fund manager headquartered in the UAE wishes to access Hong Kong-based investors or counterparties, or a Hong Kong-licensed entity wishes to route a strategy through a UAE-domiciled fund vehicle. Either direction raises the same question. Which regulator has jurisdiction over the activity actually being conducted? The answer is not determined by where the fund is incorporated. It is determined by where the regulated activity occurs and where it is directed.

Hong Kong's licensing perimeter reaches activities conducted in Hong Kong and, in certain circumstances, activities directed at Hong Kong investors from outside the territory. The UAE's perimeter operates on a parallel basis within its own licensed zones. A fund that assumes one licence satisfies both is exposed. In our cross-border practice, this is one of the most common structural errors we see in digital-asset mandates involving the Hong Kong–UAE corridor.

The AML dimension compounds the risk. VATPs in Hong Kong are subject to customer due diligence requirements and the FATF travel rule (the Financial Action Task Force standard requiring identifying information to accompany virtual-asset transfers). The UAE has implemented equivalent requirements through its own regulatory framework. A fund operating in both places must maintain AML procedures that satisfy both sets of standards simultaneously – not sequentially.

Who this affects and what to do now

Fund managers, general partners and promoters in any of the following positions should conduct an immediate structural review.

A UAE-domiciled fund accepting capital from Hong Kong-based limited partners or professional investors.
A Hong Kong-licensed entity acting as sub-adviser, investment manager or trading counterparty to a UAE fund.
A dual-listed or dual-domiciled structure in which the management company sits in one jurisdiction and the fund vehicle in the other.
Any arrangement in which digital assets treated as securities in Hong Kong are held, managed or traded through the UAE leg of the structure.

The immediate action is a licensing-posture review: map the activities conducted in each jurisdiction against the regulatory perimeter of that jurisdiction, identify every touchpoint at which a licence, exemption or notification may be required, and document the AML procedures that will apply to each. Where the Hong Kong leg involves a centralised trading platform or custody function, the mandatory licensing requirement under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance applies and cannot be deferred. Where the digital assets involved are securities or futures contracts, the Securities and Futures Commission's licensing regime under the Securities and Futures Ordinance is engaged in addition.

We regularly advise on exactly this corridor – dual-regulator positioning, sequencing the licensing applications, and ensuring the AML and travel-rule procedures are consistent across both jurisdictions. Counsel on our desk sees the structural error identified above in a material proportion of new mandates, and the correction is substantially easier before capital is accepted than after.

For a preliminary read on your fund's licensing posture across Hong Kong and the UAE, email info@lockhartyip.com.

For further guidance on related digital-asset and cross-border structuring questions, see our Tech & Web3 practice, our briefing on cross-border SaaS and data agreements, and our guide on digital-asset funds structured through Hong Kong and Singapore.

Frequently asked questions

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

Yes, in almost every case. The Hong Kong mandatory licensing regime under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance and, where securities are involved, the Securities and Futures Ordinance create obligations that must be addressed by counsel with direct knowledge of the Hong Kong regulatory perimeter. A UAE-side adviser alone cannot assess the Hong Kong licensing trigger or the AML obligations that arise when the fund has a Hong Kong nexus. International counsel coordinating both sides is the standard approach for dual-corridor digital-asset fund structures.

How does the cross-border element affect a digital-asset fund structured through Hong Kong and the UAE?

The cross-border element means that two separate regulatory regimes apply in parallel, not in sequence. Neither jurisdiction defers to the other. A fund that is fully compliant in the UAE may still require a Hong Kong licence if its activities are directed at Hong Kong investors or conducted through a Hong Kong entity. The AML obligations – including the FATF travel rule for virtual-asset transfers – must satisfy both sets of standards simultaneously. Structural decisions made at formation, including domicile, management company location and investor base, all affect where the regulatory burden falls.

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

The principal risks are operating without the required Hong Kong licence, applying AML procedures that satisfy one regulator but not the other, and misclassifying digital assets in a way that triggers the securities-licensing regime unexpectedly. A secondary risk is the management company–fund vehicle split: placing management in one jurisdiction and the fund vehicle in the other does not insulate either from the other's regulatory reach. Enforcement risk is real in both jurisdictions and, where assets or counterparties sit in Hong Kong, the Securities and Futures Commission's powers extend to the underlying activity regardless of where the fund is formally incorporated.

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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 UAE

What the structural trigger is – and why it is appearing now

Who this affects and what to do now

Frequently asked questions

Speak with Lockhart & Yip

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