How to approach a digital-asset fund structured CIS

A digital-asset fund linking Hong Kong and the CIS (the Commonwealth of Independent States, comprising former Soviet republics including Kazakhstan, the UAE-adjacent jurisdictions of Azerbaijan and Uzbekistan, and the Russian Federation) is not a single structure. It is at least two regulatory conversations running in parallel, governed by instruments that do not speak to each other. The founding question – which jurisdiction does the regulatory lifting, and which holds the assets – determines every step that follows.

A digital-asset fund structured through Hong Kong and the CIS requires the operator to satisfy two distinct licensing and compliance regimes simultaneously: Hong Kong's mandatory virtual-asset trading platform licensing regime under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, administered by the Securities and Futures Commission, and the applicable CIS-jurisdiction rules governing collective investment and virtual-asset activities – with AML obligations running under both systems from the first day of operations.

This guide sets out the decision the operator faces, the sequence in order, the gate at each step, and the single most common mistake we see in cross-border digital-asset fund structures of this type.

What decision does the operator actually face?

The first question is not "how do we register?" It is "which jurisdiction is doing which job?" A fund in this corridor typically has three moving parts: a Hong Kong-regulated operating entity or trading platform, a CIS-jurisdiction entity that may hold investor relationships or local assets, and an offshore holding layer – most commonly a BVI or Cayman vehicle – sitting above both.

Each part attracts a different regulator, a different licensing threshold, and a different AML obligation. The operator must map those three layers before filing anything. Getting the sequencing wrong does not just slow the process; it can create a structural defect that requires unwinding the entire arrangement.

In our cross-border practice, we regularly see groups that have incorporated in Hong Kong first – because the Hong Kong entity felt simpler to form – and then discovered that the CIS entity's activities, when aggregated with the Hong Kong entity's activities, trigger a licensing obligation they had not anticipated. The two systems do not aggregate automatically. But the regulators do exchange information, and a structure that looks clean in one jurisdiction can look opaque in another.

The three main options on the table are: (a) a Hong Kong-primary structure, where the licensed entity sits in Hong Kong and the CIS entity is a feeder or distribution vehicle; (b) a CIS-primary structure, where the licensed entity sits in the relevant CIS jurisdiction and Hong Kong serves as the trading or custody layer; and (c) a parallel-licensing structure, where both jurisdictions carry licensed entities and the offshore holding layer coordinates the capital flows. Option (c) is the most defensible from a regulatory standpoint. It is also the most operationally demanding.

Step one: establish the fund's regulatory perimeter before any entity is formed

The regulatory perimeter is the set of activities the fund will actually conduct – and the set of assets it will hold – across both jurisdictions. This step comes before entity formation. It is the gate that every subsequent step depends on.

In Hong Kong, the relevant instrument is the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, as amended to introduce the virtual-asset trading platform licensing regime. That regime commenced on 1 June 2023, and it requires any centralised virtual-asset trading platform operating in or targeting Hong Kong to hold a licence from the Securities and Futures Commission. Where the fund's assets include virtual assets that qualify as "securities" or "futures contracts" under the Securities and Futures Ordinance, a separate SFC licence applies on top of the VATP licence.

The perimeter question for the CIS side is more variable. Kazakhstan, for example, operates a separate financial-technology regulatory environment within the AIFC (the Astana International Financial Centre, a special-purpose financial hub established in Kazakhstan with its own legal system based on English common law). Uzbekistan has developed its own digital-asset licensing regime. Other CIS jurisdictions – including the Russian Federation – have taken different approaches to crypto-asset activity at the fund level, and the sanctions posture of those jurisdictions has further complicated the analysis for internationally connected funds.

The practical gate at step one is a written perimeter memorandum. Until the fund's management can agree on a single document describing what the fund does, where it does it, and which assets it holds, no external filing should proceed.

Step two: run the AML and sanctions mapping before the structure is fixed

AML mapping is not a compliance afterthought. It is a structural input. The way the fund is structured determines which AML regime applies to which entity – and which entity is responsible for customer due diligence, the FATF travel rule for virtual-asset transfers, and source-of-funds documentation.

Hong Kong implements United Nations sanctions and does not give domestic effect to unilateral measures of other states. That is the Hong Kong position under the United Nations Sanctions Ordinance. A fund with investors, counterparties, or assets in certain CIS jurisdictions will need to map its exposure against the UN consolidated list and, separately, against the sanctions regimes of any other jurisdiction in which the fund is marketed or through which its banking relationships run. Those two assessments are not the same. The UN list and any given state's unilateral list can diverge materially.

Virtual-asset trading platforms licensed in Hong Kong are subject to customer due diligence obligations and the FATF travel rule for virtual-asset transfers under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance. The travel rule requires that certain identifying information accompany virtual-asset transfers above the applicable threshold. If the fund's CIS entity is also sending or receiving virtual-asset transfers, that entity must comply with whatever travel-rule equivalent applies in its home jurisdiction.

The gate at step two is a completed sanctions and AML mapping document, signed off by the fund's compliance function, before the entity structure is agreed. This document will be requested by the Hong Kong regulator in any subsequent licensing application, and by the fund's banking institutions before accounts can be opened.

The sequence above describes the standard position. Your matter turns on the documents, the jurisdictions actually engaged, and the order of steps – which is where the route is won or lost. For a structured assessment of your fund's regulatory perimeter and AML position across Hong Kong and the relevant CIS jurisdiction, write to us at info@lockhartyip.com.

Step three: form the entities in the correct order

Entity formation follows the perimeter and AML mapping. It does not precede them. The correct order is: offshore holding entity first, then the Hong Kong operating entity, then the CIS entity – unless the CIS jurisdiction's licensing rules require the CIS entity to be formed first as a condition of the local licence application.

The offshore holding layer – typically a BVI or Cayman vehicle – should be structured with the economic-substance regime of the relevant offshore jurisdiction in mind. Both BVI and Cayman have active economic-substance regimes that apply to holding companies. A holding company that does nothing in its home jurisdiction risks failing the substance test, which can lead to regulatory consequences in the offshore jurisdiction itself and reputational consequences with the fund's banking institutions.

The Hong Kong entity is then formed under the Companies Ordinance (Cap. 622). Hong Kong-incorporated companies must maintain a Significant Controllers Register – a requirement in force since 1 March 2018 – which identifies the natural persons who ultimately own or control the company. For a fund with CIS-origin investors or principals, this register is the document that will be scrutinised first in any regulatory review. It must be accurate, current, and capable of being produced on demand.

The CIS entity is formed in accordance with the rules of the relevant jurisdiction. Where the CIS jurisdiction is the AIFC in Kazakhstan, the entity formation process uses English common law as its legal basis – which makes it easier to integrate with the Hong Kong entity's governance documents. Other CIS jurisdictions use civil-law frameworks, which require a more careful translation of the fund's governance terms into the local legal concepts.

How does the Hong Kong licensing application actually run?

The Securities and Futures Commission is the licensing authority for virtual-asset trading platforms in Hong Kong. The application process requires the fund's Hong Kong entity to demonstrate, among other things: fit-and-proper status for responsible officers; a compliance manual that addresses AML, know-your-client and travel-rule obligations; cybersecurity and custody arrangements for digital assets; and a risk-management framework appropriate to the fund's investment strategy.

Where the fund's assets include virtual assets that are securities under the Securities and Futures Ordinance, the licensing analysis becomes more detailed. The SFC applies its existing securities-regulatory framework to those assets. A digital-asset fund that holds a mix of regulatory-exempt tokens and security tokens must segregate those two categories operationally and maintain separate compliance records for each.

In our cross-border practice, the documents that most commonly cause delays in a Hong Kong VATP licence application are the source-of-funds documentation for CIS-origin capital and the custody-arrangement agreement. Banks and custodians with CIS counterparty exposure apply enhanced due diligence as a matter of course. The fund must be able to demonstrate, with contemporaneous records, the lawful origin of the capital it is deploying. This is not a one-time exercise. It is an ongoing obligation that runs for the life of the fund.

The gate at this step is a complete application package, including all entity documents, compliance manuals, custody arrangements, and source-of-funds records. An incomplete application restarts the clock.

What does the CIS licensing and recognition step look like?

The CIS licensing step depends entirely on which jurisdiction the fund has chosen as its CIS anchor. The options differ significantly in their legal basis, their regulatory sophistication, and their degree of interaction with the Hong Kong regime.

The AIFC in Kazakhstan represents the most developed interface with common-law offshore and Hong Kong structures. Its legal system is based on English common law, and its regulatory body – the AFSA, the Astana Financial Services Authority – has published rules governing digital-asset trading and custody that are broadly compatible with FATF standards. A fund using the AIFC as its CIS anchor can generally present its Hong Kong compliance documentation to the AFSA with limited adaptation.

Other CIS jurisdictions – Uzbekistan, Georgia, and others that have developed digital-asset regimes – require more bespoke engagement. Their rules are newer, their precedents are fewer, and the interaction between their AML frameworks and the fund's Hong Kong obligations requires careful mapping. We work alongside locally admitted counsel in those jurisdictions on matters of local law.

The recognition question – whether the CIS jurisdiction will recognise the fund's Hong Kong-licensed status, or vice versa – does not have a treaty-based answer. There is no bilateral mutual recognition agreement between Hong Kong and any CIS jurisdiction in the digital-asset space. Recognition is achieved operationally, by ensuring that each entity holds the licence required by its own jurisdiction, and that the group's compliance function can demonstrate conformity with both regimes simultaneously.

If an earlier filing, structure or enforcement attempt produced an adverse or stalled result, a second read can identify the strategic error and the routes still open. Write to info@lockhartyip.com to discuss the position.

The common mistake: treating the CIS entity as a passive conduit

The single most common mistake we see in digital-asset fund structures of this type is treating the CIS entity as a passive vehicle that simply holds investor relationships or local accounts while the "real" activity happens in Hong Kong.

That analysis is wrong for two reasons. First, a CIS entity that receives capital from local investors and routes it to a Hong Kong trading entity will typically be characterised as conducting fund-management or collective-investment activity in the CIS jurisdiction – which triggers a local licensing obligation, regardless of what the Hong Kong entity is doing. Second, the CIS entity's banking relationships will be subject to enhanced due diligence from any international correspondent bank, and a structure in which the CIS entity appears to have no real function is one that international banks will treat with suspicion.

The solution is to give the CIS entity genuine substance: its own responsible persons, its own compliance function, its own records, and a defined role in the fund's operational structure that it actually performs. This is not an administrative burden for its own sake. It is the condition on which the CIS entity's banking relationships, and therefore the fund's ability to operate, depend.

A related myth is that a Hong Kong VATP licence automatically covers the fund's CIS activities because Hong Kong is the "hub." It does not. The SFC licence covers the Hong Kong-regulated activities of the Hong Kong entity. It says nothing about what the CIS entity may do in its home jurisdiction. Each entity must carry its own licence for its own activities. The fund's legal architecture must reflect that reality from the outset.

Decision checklist: eight questions before you file

Before any external filing proceeds, the fund's management should be able to answer the following eight questions in writing. Where an answer is not yet available, that gap identifies the next piece of work to do.

First: have the fund's activities been mapped across both jurisdictions, and has a written perimeter memorandum been agreed?

Second: has the sanctions mapping been completed against both the UN consolidated list and the lists of every jurisdiction through which the fund's banking relationships will run?

Third: has the AML framework been designed to satisfy both the Hong Kong Anti-Money Laundering and Counter-Terrorist Financing Ordinance and the applicable CIS-jurisdiction AML rules simultaneously?

Fourth: has the offshore holding entity been structured with the economic-substance requirements of its home jurisdiction in mind?

Fifth: has the Hong Kong entity's Significant Controllers Register been prepared, with complete and accurate information about all natural-person controllers, including those resident in the CIS?

Sixth: does the CIS entity have genuine substance – its own responsible persons, its own compliance records, and a defined operational role?

Seventh: has the source-of-funds documentation for all CIS-origin capital been assembled in a form that a Hong Kong-regulated bank will accept?

Eighth: has locally admitted counsel been engaged in the relevant CIS jurisdiction to advise on local licensing, entity formation, and AML obligations as a matter of local law?

If all eight questions can be answered affirmatively, the fund is in a position to file. If any cannot, filing before the gap is closed creates a regulatory exposure that is significantly harder to remedy after the fact than before it.

Related practices

Sanctions & AML – cross-border AML compliance, sanctions mapping and counterparty due diligence
Holding Structures – offshore and Hong Kong holding layers, substance planning and governance

Frequently asked questions

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

The route runs in five stages: perimeter mapping across both jurisdictions, AML and sanctions assessment, entity formation in the correct order (offshore holding layer first, then Hong Kong operating entity, then CIS entity), Hong Kong VATP licensing application to the Securities and Futures Commission, and CIS licensing engagement with the relevant local authority. Each stage has a gate that must be cleared before the next stage begins. Skipping or reordering the stages is the most common source of structural defects in funds of this type.

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

The principal risks are: failing to obtain the correct licence in each jurisdiction before commencing activities; treating the CIS entity as a passive conduit without genuine substance, which creates both regulatory and banking exposure; inadequate source-of-funds documentation for CIS-origin capital; and miscalibrating the AML framework so that it satisfies one jurisdiction's rules but not the other's. A sanctions mismatch – between the UN list and the lists of jurisdictions through which the fund's banking relationships run – is a further risk that is frequently underestimated at the structuring stage.

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

There is no single answer. The Hong Kong entity is governed by Hong Kong law, including the Anti-Money Laundering and Counter-Terrorist Financing Ordinance and, where relevant, the Securities and Futures Ordinance. The CIS entity is governed by the law of its home jurisdiction. The offshore holding entity is governed by BVI or Cayman law, depending on the jurisdiction of incorporation. Investor contracts and fund documents will carry their own governing-law clause, typically Hong Kong or English law for international-facing funds. Parties should verify the current licensing position in each jurisdiction before structuring.

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

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