How to approach a digital-asset fund structured through Hong Kong and the BVI

A digital-asset fund spanning Hong Kong and the British Virgin Islands sits at the intersection of two well-developed but distinct legal regimes. The Hong Kong side carries the licensing exposure, the regulatory relationship, and the AML obligations. The BVI side carries the fund vehicle, the constitutional documents, and the investor relationship. Getting the sequence right between them – and knowing which regulator actually applies to which activity – is the structural question that determines whether the fund operates within the rules or outside them.

A digital-asset fund structured through Hong Kong and the BVI requires a sequenced approach: first, establish whether the Hong Kong activities trigger a licensing obligation under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance or the Securities and Futures Ordinance; second, build the BVI fund vehicle to accommodate that licensing position; and third, implement the AML and compliance programme before any investor capital is received. The Securities and Futures Commission is the primary licensing authority for virtual-asset-related activities in Hong Kong, and its perimeter reaches fund managers directing portfolios of virtual assets that qualify as securities.

This guide works through the decision in order: what the reader faces, how the structure typically runs, where the common mistakes sit, and what a practical checklist looks like before the fund goes live.

What decision does the fund manager actually face?

The starting point is not the BVI constitutional document. It is the activity that will take place in or from Hong Kong and whether that activity is regulated.

A fund manager directing a portfolio of virtual assets from Hong Kong faces two parallel licensing questions. The first is whether any of the assets in scope are "securities" or "futures contracts" under the Securities and Futures Ordinance. If they are, the manager must hold the relevant licence from the Securities and Futures Commission regardless of where the fund vehicle is domiciled. The second question is whether the manager is also operating or substantially involved with a centralised virtual-asset trading platform. If so, the mandatory licensing regime for virtual-asset trading platforms (VATPs, the category of centralised exchanges that must be licensed in Hong Kong) under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance applies, and the Securities and Futures Commission is again the licensing authority. That regime commenced on 1 June 2023.

These two questions are not mutually exclusive. A fund that both manages a securities-token portfolio and operates an internal matching or execution venue may engage both licensing tracks. The first step is therefore a clean legal analysis of the activities – not the asset labels the manager prefers – against the statutory definitions.

What the BVI adds at this stage is simply the structural question: is the fund vehicle to be a BVI Business Company, a limited partnership, or a SIBA-regulated fund under the Securities and Investment Business Act? Each has different constitutional, investor-disclosure, and ongoing filing requirements. The choice at the BVI level must accommodate whichever Hong Kong licensing conclusion emerges from the activity analysis.

How does the Hong Kong licensing step actually run?

Licensing in Hong Kong is a pre-conditions exercise before any regulated activity begins, and the Securities and Futures Commission expects to see a complete application – substance, personnel, and compliance infrastructure – before it grants approval.

For a fund manager seeking a Type 9 licence (asset management) under the Securities and Futures Ordinance, the requirements address the fitness and properness of the responsible officers, the adequacy of the manager's financial resources, the internal controls framework, and the specific provisions for virtual-asset portfolios that the Securities and Futures Commission has set out in its licensing conditions and circulars. Fund managers handling virtual assets that are securities must additionally meet the Commission's enhanced requirements for custody, valuation, and investor eligibility. Retail exposure carries materially tighter conditions than professional-investor-only funds.

For VATP licensing under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, the application addresses the platform's governance structure, its AML and counter-terrorist financing programme, its technology risk management, and its safeguarding of client assets. A fund that does not operate a trading platform but merely uses one is not itself required to hold a VATP licence, though it must conduct due diligence on the platforms it uses.

The practical gate at this step: no regulated virtual-asset activity should commence until the licence is either granted or, where permitted by the Commission, the applicant is in the transitional position that the rules allow. The sequence cannot be reversed. Commencing activity and then applying for a licence is an enforcement exposure, not a regularisation option.

The sequence above describes the standard licensing track. Your matter turns on the specific activities, the asset types engaged, and the investor profile – which is where the route is won or lost. For a structured assessment of your fund's licensing position across Hong Kong and the BVI, write to us at info@lockhartyip.com.

Where does the BVI structure sit in the sequence?

The BVI fund vehicle is typically established in parallel with the Hong Kong licensing process, but its constitutional terms must be settled only after the licensing position is clear.

A BVI Business Company used as a fund vehicle operates under the BVI Business Companies Act. Where the fund intends to offer its interests publicly or to a defined class of investors, it may also engage the Securities and Investment Business Act, which establishes a separate regulatory perimeter for funds in the BVI itself. Most digital-asset funds using the BVI choose a structure that targets professional or sophisticated investors only, which carries lighter BVI regulatory requirements while preserving the flexibility of the BVI corporate form.

The constitutional documents – the memorandum and articles, the fund's private placement memorandum, and the subscription agreement – must reflect the Hong Kong licensing conditions where those conditions affect investor eligibility, redemption terms, custody arrangements, or disclosure obligations. A disconnect between the Hong Kong licence conditions and the BVI offering documents is a recurring structural error. It typically surfaces at investor onboarding, when the compliance team discovers that the subscription agreement permits something the Hong Kong licence does not.

Economic-substance rules also apply in the BVI. A BVI entity with relevant activities must maintain substance in the BVI in accordance with the applicable regime. For a pure holding or fund vehicle that directs its management activities from Hong Kong, the substance analysis must be done carefully to ensure the BVI entity is not treated as conducting management activity that properly belongs to the licensed Hong Kong entity.

What are the AML obligations and how are they implemented?

AML obligations for a digital-asset fund operating through Hong Kong are set by the Anti-Money Laundering and Counter-Terrorist Financing Ordinance and the Securities and Futures Commission's AML guidelines for intermediaries dealing in virtual assets.

The core requirements are customer due diligence on investors, ongoing monitoring of transactions, and – for virtual-asset transfers above the applicable threshold – compliance with the travel rule (the FATF standard requiring originator and beneficiary information to accompany virtual-asset transfers). VATPs are specifically subject to the travel rule in Hong Kong. A fund manager that is not itself a VATP but instructs transfers through VATPs must understand its own position in that chain and ensure that the platforms it uses comply.

Source-of-funds analysis for digital-asset funds is more demanding than for conventional funds. The provenance of crypto assets contributed by investors is not always traceable through standard KYC documentation, and the Securities and Futures Commission's expectations on this point are specific. Blockchain analytics tools are widely used in the market to supplement document-based due diligence, and the Commission expects their use to be embedded in the AML programme rather than applied retrospectively.

The BVI side adds its own AML obligations. A BVI fund or company is subject to the BVI's anti-money laundering regime, and the fund's administrator – typically based in the BVI or an adjacent jurisdiction – must implement its own procedures. The two AML programmes (Hong Kong and BVI) need not be identical, but they must not be inconsistent, and the points of handoff between the manager (Hong Kong) and the fund (BVI) must be documented.

If an earlier compliance programme or investor onboarding approach produced a gap or an adverse regulatory observation, a second read of the AML documentation can identify what remains open and what remediation route is available. To discuss the AML position for your fund structure, email info@lockhartyip.com.

What do foreign counsel and managers typically get wrong?

The most consistent structural error we see on our desk is treating Hong Kong purely as a management location and the BVI purely as a vehicle location, without analysing how the activities in Hong Kong reach into the BVI entity's operations.

The licensing perimeter in Hong Kong is activity-based, not entity-based. It does not ask where the vehicle is domiciled. It asks where the regulated activity is conducted and from where it is directed. A manager whose investment decisions, trading instructions, and client communications all originate in Hong Kong is conducting regulated activity in Hong Kong, regardless of which entity formally holds the assets or issues the fund interests. The failure to see this distinction leads some managers to structure as if the BVI entity were the regulated party and the Hong Kong operation were merely administrative. The Securities and Futures Commission does not accept that characterisation.

A second common error is sequencing the BVI constitutional documents before the Hong Kong licensing analysis is complete. This produces offering documents that are inconsistent with the eventual licence conditions and requires amendment at the point of launch – a delay that can affect investor commitments already in train.

A third error is treating the AML obligation as a one-time onboarding exercise. Digital-asset portfolios change composition rapidly. Ongoing monitoring – including periodic refresh of source-of-funds analysis for investors who contribute additional assets – is a continuing requirement, not a launch-day exercise.

For international managers accustomed to Delaware or Cayman structures, the Hong Kong VATP and securities-licensing regime is more prescriptive on custody and valuation than many equivalent regimes. Applying the assumptions of another jurisdiction is a reliable way to produce a non-compliant Hong Kong structure.

How does the cross-border interface between Hong Kong and the BVI operate in practice?

The Hong Kong and BVI legal systems operate independently. Common law applies in both jurisdictions, which eases some of the inter-jurisdictional friction, but the regulatory regimes are entirely separate and neither defers to the other.

In cross-border enforcement terms, Hong Kong implements United Nations sanctions and does not give domestic effect to unilateral sanctions measures of other states. A digital-asset fund operating through Hong Kong must therefore manage its sanctions screening against the UN lists and the specific lists that the Hong Kong authorities maintain, rather than importing the assumptions of US or EU sanctions programmes directly. This is a compliance position, not an evasion point. The distinction matters because investors and counterparties from different jurisdictions will have different sanctions exposures, and the fund's compliance programme must be calibrated to the Hong Kong legal environment.

On a practical level, the relationship between the Hong Kong-licensed manager and the BVI fund vehicle is documented in a management agreement. That agreement governs the delegation of authority, the fee structure, the liability allocation, and the conditions under which the manager may act without seeking fund-board approval. The management agreement must be consistent with both the Hong Kong licence conditions and the BVI corporate framework.

See our practice page on Tech & Web3 for the broader regulatory environment in which digital-asset funds operate from Hong Kong. For token issuance questions that often arise alongside fund structuring, the briefing at token issuance reviewed under Hong Kong's regime sets out the relevant overlay. Where the fund's portfolio includes data agreements or cross-border technology arrangements, the analysis at cross-border SaaS or data agreement touching UAE addresses the comparable interface questions in a different context.

A practical decision checklist before the fund goes live

The following checklist is not exhaustive, and the specific requirements for each fund will vary with its activities, asset types, and investor profile. It is intended as a sequenced prompt for the key decision points.

• Activity analysis complete: confirm whether the fund's investment strategy engages virtual assets that are securities or futures contracts under the Securities and Futures Ordinance.
• VATP nexus assessed: confirm whether any activity of the manager or fund constitutes operating or materially participating in a centralised virtual-asset trading platform, triggering the Anti-Money Laundering and Counter-Terrorist Financing Ordinance licensing requirement.
• Licence application submitted (or transitional position confirmed): no regulated activity commences until the Securities and Futures Commission has either granted the licence or confirmed a permitted transitional position.
• BVI vehicle documentation finalised: the memorandum and articles, private placement memorandum, and subscription agreement are settled after – not before – the Hong Kong licensing conditions are known.
• Investor eligibility confirmed: professional-investor-only restriction documented in both the BVI offering documents and the Hong Kong compliance procedures; retail investor access considered only where the licence conditions permit.
• AML programme implemented: customer due diligence, source-of-funds analysis, and travel-rule procedures documented and tested before the first investor subscription is processed.
• Custody arrangements confirmed: the custody solution for virtual assets meets the Securities and Futures Commission's requirements on segregation, security, and counterparty fitness.
• BVI substance position assessed: confirm that the BVI fund entity's management and control arrangements do not create a substance deficiency under the applicable BVI economic-substance rules.
• Management agreement executed: the agreement between the Hong Kong manager and the BVI fund is in place and consistent with both the licence conditions and the BVI constitutional documents.
• Sanctions screening programme active: the fund's screening is calibrated to United Nations sanctions lists applicable in Hong Kong, with a documented approach to investor and counterparty screening.

Parties should verify the current regulatory position – including the precise perimeter of the VATP and stablecoin licensing regimes – before acting on any structural assumption, as the Hong Kong virtual-asset regulatory environment continues to develop.

Related practices

• Tech & Web3 – licensing, AML and structure for virtual-asset businesses in Hong Kong and offshore
• Sanctions & AML – compliance programme design and cross-border counterparty screening
• Holding Structures – BVI, Cayman and Hong Kong holding architecture for cross-border funds

Speak with Lockhart & Yip

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• Tech Web3
• Token Issuance Reviewed Under Hong Kong S Regime
• Cross Border Saas Or Data Agreement Touching Uae 4

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