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

Two regulators. Two licensing regimes. One fund that must satisfy both before it can take a single dollar of investor capital. For a digital-asset fund structured through Hong Kong and the United Arab Emirates, that is the commercial reality from day one – and the sequence in which those regulators are addressed largely determines whether the structure holds or fractures under scrutiny.

A digital-asset fund operating across Hong Kong and the UAE must map its activities against two independent licensing regimes: the Securities and Futures Commission's virtual-asset framework in Hong Kong, which has been mandatory since 1 June 2023, and the UAE's Financial Services Regulatory Authority (the financial-services regulator in Abu Dhabi's international financial centre) or the Dubai Financial Services Authority, depending on where the fund entity sits. The governing instrument in Hong Kong is the Anti-Money Laundering and Counter-Terrorist Financing Ordinance and, where the fund holds virtual assets that are securities, the Securities and Futures Ordinance. Both must be read in parallel with the UAE regulatory perimeter before structure and substance are fixed.

This guide covers the decision the reader faces, the sequence of steps, the gate at each stage, the common structural mistakes, and a short checklist for in-house counsel and principals working through the route for the first time.

What is the core decision, and what options does the reader actually have?

The first question is not "Hong Kong or the UAE" – it is "which entity does what, and which regulator does that activity engage?" A digital-asset fund operating through both jurisdictions typically involves at least three functional roles: fund management, custody or trading-platform access, and investor-facing distribution. Each of those roles carries a different licensing trigger in each jurisdiction.

In Hong Kong, the relevant question is whether the fund manager is operating a centralised virtual-asset trading platform (VATP) – in which case mandatory licensing under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance applies, with the Securities and Futures Commission as licensing authority – or whether it is managing a fund whose assets include virtual assets that qualify as "securities" under the Securities and Futures Ordinance. The two licensing tracks are not mutually exclusive. A fund that both manages and trades may engage both.

In the UAE, the choice of seat matters at the outset. The Abu Dhabi Global Market and the Dubai International Financial Centre are separate international financial centres with their own regulatory bodies and their own perimeters. Neither is the same as the UAE onshore regime administered by the UAE Securities and Commodities Authority. Choosing the wrong entity seat before the licensing analysis is complete is the most common structural error our desk sees on mandates of this kind.

The practical options on the table are broadly three. First, a Hong Kong management entity with a UAE feeder or distribution vehicle. Second, a UAE management entity with a Hong Kong trading or custodian arrangement. Third, a parallel structure where both jurisdictions house independent but coordinated functions. Each option has a different licensing profile, a different AML obligation stack, and a different substance requirement. The sequence below assumes the most common pattern: a Hong Kong-managed fund with UAE investor access and a UAE co-management or sub-advisory arrangement.

Step one: Define the virtual-asset perimeter before touching any corporate documents

The licensing analysis must precede the structure. That is not an obvious point for founders who have arrived at the desk with a term sheet and a BVI holding entity already in place. But until the fund manager knows whether its virtual assets are securities, futures contracts, or neither, it cannot know which regulator applies – and a structure built on the wrong classification is expensive to unwind.

In Hong Kong, the Securities and Futures Commission applies a substance-over-form test to virtual assets. Where a token carries economic rights resembling those of a share or a collective investment scheme interest, it is likely to be treated as a security. Where the fund strategy involves discretionary trading of non-security virtual assets on a centralised platform, the VATP licensing track under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance is the relevant gate. Both outcomes require direct engagement with the Securities and Futures Commission before the entity is incorporated.

In the Abu Dhabi Global Market, the Financial Services Regulatory Authority publishes a virtual asset framework that distinguishes between virtual-asset issuance, management and exchange activities. The Dubai Financial Services Authority operates an equivalent regime from within the Dubai International Financial Centre. Neither centre automatically mirrors the Hong Kong classification. A virtual asset that is not a security in Hong Kong may be classified differently in Abu Dhabi, and vice versa.

The gate at this step is a written perimeter analysis – sometimes called a regulatory mapping – covering both jurisdictions. It answers three questions: what activities does the fund conduct; which regulator in each jurisdiction has jurisdiction over those activities; and what licence category applies. Until that document exists and has been reviewed by counsel familiar with both regimes, no entity should be incorporated and no investor documents should be issued.

We regularly advise fund sponsors at this stage before a single entity is in place. The perimeter analysis typically takes two to four weeks and prevents the much costlier exercise of restructuring a live entity that has already engaged investors.

Step two: Fix the entity architecture and the substance position

With the perimeter analysis complete, the entity architecture follows from the licensing requirements rather than being imposed on them. The key variables are: where the management entity sits; where the fund vehicle sits; and where the custodian or prime-broker relationship is held.

A Hong Kong-incorporated management company seeking a licence from the Securities and Futures Commission will need to demonstrate adequate substance in Hong Kong. For a VATP licence, the Securities and Futures Commission's requirements include fit-and-proper responsible officers, internal controls and AML compliance systems that meet the standards in the Anti-Money Laundering and Counter-Terrorist Financing Ordinance and the associated AML guidelines published by the Securities and Futures Commission. These requirements are not nominal. They take time to build and document.

On the UAE side, the Abu Dhabi Global Market and the Dubai International Financial Centre both impose substance conditions on their licensed entities. A sub-advisory or co-management arrangement between a Hong Kong manager and a UAE-licensed entity must be structured so that each entity has genuine decision-making capacity in its jurisdiction. Regulators in both centres look through arrangements where substance is claimed but management decisions are demonstrably made elsewhere.

The fund vehicle itself is often a Cayman Islands limited partnership or a BVI fund, sitting above the two management entities. That arrangement is common and well-understood in both Hong Kong and the UAE regulatory context. However, the AML obligations of the management entities extend to knowing their investors and their investors' source of funds, regardless of where the fund vehicle is domiciled. A Cayman vehicle does not insulate the Hong Kong or UAE manager from its AML file obligations.

The gate at this step is the completion of entity incorporation documents, constitutional documents for the fund vehicle, and an internal AML and compliance manual that can be presented to the relevant regulator on licence application. Counsel on our desk coordinates the cross-border documentation package across both jurisdictions, working with locally licensed firms in Hong Kong and with allied counsel admitted in the relevant UAE centre.

Step three: The licence application – sequence and the regulator that applies

The licence application is not a simultaneous exercise in both jurisdictions. The sequencing decision has practical consequences for the speed of the overall authorisation timeline and for the credibility of the application in each centre.

In most structures we have advised on, the Hong Kong licensing process with the Securities and Futures Commission is commenced first. This reflects the relative depth of the Securities and Futures Commission's published guidance on virtual-asset licensing requirements, which allows a more fully developed application to be prepared. The Abu Dhabi or Dubai application then follows, with the Hong Kong application already filed or advanced, which strengthens the credibility profile of the UAE filing.

The Hong Kong application for a VATP licence requires, among other things, a completed regulatory business plan, fit-and-proper submissions for responsible officers, an AML/KYC manual, a cybersecurity assessment, and a custody arrangement description. The Securities and Futures Commission may ask supplemental questions. The timeline for a first licence is material. Sponsors should plan for a process measured in months, not weeks, and should treat the pre-submission engagement with the Securities and Futures Commission's virtual-asset team as a required step rather than an optional one.

Where the fund holds virtual assets that are securities, a separate licence under the Securities and Futures Ordinance for the management activity is also required. The two applications may proceed in parallel but must be kept consistent in their description of the business.

In the UAE, the relevant international financial centre regulator will conduct its own fit-and-proper assessment and review the fund's constitutional documents, investor terms, and AML framework. Where the Hong Kong manager and the UAE entity are in a sub-advisory arrangement, both the principal and the sub-adviser must satisfy their respective regulators independently.

The gate at this step is receipt of in-principle approval from both regulators. Investor capital cannot be raised and the fund cannot commence operations until both approvals are in hand, or until both regulators have confirmed a defined pathway to full authorisation. The common mistake here is commencing soft-circle investor conversations before in-principle approval is received. That creates a regulatory exposure in both jurisdictions that cannot easily be remedied after the fact.

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 licensing position across Hong Kong and the UAE, write to us at info@lockhartyip.com.

Step four: Build the AML and travel-rule compliance infrastructure

AML compliance is not a box to be checked at the end of the licensing process. For a digital-asset fund operating across Hong Kong and the UAE, it is a live operational requirement from the point at which the first investor relationship is established – and the two jurisdictions impose obligations that must be read together, not in sequence.

In Hong Kong, VATPs are subject to customer due diligence requirements and the FATF travel rule (the Financial Action Task Force's requirement that originator and beneficiary information accompany virtual-asset transfers above a defined threshold). The Anti-Money Laundering and Counter-Terrorist Financing Ordinance and the Securities and Futures Commission's AML guidelines set the standard. The fund's AML manual must address both institutional investor on-boarding (source of funds, beneficial ownership, politically exposed persons) and the travel-rule obligations that apply to any virtual-asset transfers the fund or its platform partner executes.

In the UAE, both the Abu Dhabi Global Market and the Dubai International Financial Centre have adopted equivalent AML and travel-rule frameworks aligned with FATF standards. The obligation to identify the beneficial owners of investor entities applies in both centres. Where the fund has UAE-based investors or counterparties, the UAE centre's AML framework applies to those relationships regardless of whether the management entity is in Hong Kong.

The practical implication is that the fund's compliance infrastructure must be designed to satisfy two regulators simultaneously. A single AML manual drafted for Hong Kong purposes and adopted without adjustment for the UAE entity will not satisfy either regulator fully. Cross-border AML alignment – a shared investor-KYC standard applied consistently across both management entities – is the approach we recommend and have built for funds of this type.

The gate at this step is an AML infrastructure that has been reviewed and approved as part of the licensing process in both jurisdictions, and that is operationally functional before the first investor transfer is executed.

What do foreign sponsors and their counsel most often get wrong?

Three structural errors appear repeatedly in mandates where a prior attempt has stalled or produced a regulatory query.

First, the entity architecture is built around tax efficiency rather than regulatory efficiency. A structure that minimises profits exposure may place the management function in a jurisdiction that cannot satisfy the substance requirements of either regulator. Tax and regulatory planning must be run in parallel, not in sequence. The interaction between the foreign-sourced income exemption regime (Hong Kong's territorial income-exemption framework, in force from 1 January 2023) and the substance conditions for a Securities and Futures Commission licence is a live tension that requires both a tax and a licensing analysis before any entity is incorporated.

Second, the custodian arrangement is left unresolved at the time of the licence application. Both the Securities and Futures Commission in Hong Kong and the UAE centre regulators require a clear account of how investor assets are held, segregated and protected. A fund that cannot describe its custody arrangement in the application will not receive in-principle approval. The custodian must be identified and its terms of engagement documented before the application is filed.

Third, the investor terms are drafted as if the fund were operating in a single jurisdiction. A fund with Hong Kong and UAE operations needs investor documents that are compliant in both regulatory environments. Offering documents drafted for a Cayman or BVI fund that do not address the specific disclosure requirements of the Securities and Futures Commission's virtual-asset regime or the UAE centre's equivalent will require material revision at the point of regulatory review – a revision that delays the timeline and signals to both regulators that the sponsor's preparation was incomplete.

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 us at info@lockhartyip.com to discuss the position.

How does the Hong Kong / UAE interface interact with cross-border enforcement?

A digital-asset fund operating across two jurisdictions will, at some point, face a cross-border enforcement question. That may be an investor dispute, a regulatory inquiry from one of the two centres, or a counterparty claim arising from a trading or custody arrangement. The structure of the fund determines the enforcement options available – and the jurisdictional gaps that exist.

Hong Kong's Arbitration Ordinance (Cap. 609), modelled on the UNCITRAL Model Law, provides a strong arbitral seat with award enforcement through the New York Convention in contracting states. The UAE, and specifically the Abu Dhabi Global Market and the Dubai International Financial Centre, also have arbitration-friendly regimes and their own arbitral institutions. A fund with management entities in both jurisdictions should have a governing-law and dispute-resolution clause in every material agreement that is consistent across both entities and that identifies a single, enforceable seat.

Investor disputes in a cross-border digital-asset fund are structurally complex. The fund vehicle may be in Cayman or BVI; the management entities in Hong Kong and the UAE; the investors in a third set of jurisdictions. An investor who brings a claim must identify which entity to pursue, in which court or tribunal, under which governing law. A fund that has been properly structured – with clear contractual chains, consistent governing-law provisions, and an arbitral clause that designates a single seat – is far easier to manage in a dispute context than one where those questions are unresolved.

In our cross-border practice, we build the enforcement and dispute architecture at the same time as the fund documentation, not after the first problem arises. The additional work at the structuring stage is materially less than the cost of resolving a jurisdictional dispute under time pressure.

Decision checklist for in-house counsel and principals

The following checklist distils the sequence above into the questions that must be answered affirmatively before the fund is operational. It is not a substitute for legal advice on a specific structure, but it reflects the gates at which the most common errors occur.

• Has a perimeter analysis been completed that classifies each virtual asset in the fund strategy under both Hong Kong and UAE regulatory frameworks?
• Has the licence category been confirmed for each management entity in each jurisdiction – VATP licence under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, a licence under the Securities and Futures Ordinance, or both?
• Is the entity architecture determined by the licensing requirements rather than by tax efficiency alone, and have the two been reconciled?
• Has the substance position for each management entity been assessed against the requirements of its relevant regulator – substance in Hong Kong for the Securities and Futures Commission; substance in the relevant UAE centre for the Financial Services Regulatory Authority or the Dubai Financial Services Authority?
• Is a custodian identified and its terms of engagement documented before the licence application is filed?
• Has an AML and travel-rule compliance manual been prepared that satisfies both regulators, and has it been reviewed by counsel admitted or qualified to advise in each jurisdiction?
• Have the investor documents been reviewed against the disclosure requirements of both regulatory environments?
• Has a governing-law and dispute-resolution clause been fixed in every material agreement, with a clearly designated seat?
• Has pre-submission engagement with the Securities and Futures Commission's virtual-asset team been completed before the Hong Kong application is filed?
• Is all investor outreach, including soft-circle conversations, deferred until in-principle approval is received from both regulators?

For more on the licensing and structuring environment for technology and digital-asset businesses through Hong Kong, see our Tech & Web3 practice. Where cross-border data and software agreements are part of the fund's infrastructure, the considerations discussed in our guide on cross-border SaaS or data agreements touching the BVI are also relevant. For a prior analysis of digital-asset fund structures in the Hong Kong and CIS context, see our related material on the Hong Kong / CIS structure.

Related practices

• Tech & Web3 – licensing, AML compliance and structure for digital-asset businesses across Hong Kong and offshore
• Sanctions & AML – counterparty review, source-of-funds files and compliant contracting for cross-border operations
• Holding Structures – entity architecture above Hong Kong operating companies across Cayman, BVI and offshore centres

Speak with Lockhart & Yip

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Related

• Tech Web3
• Cross Border Saas Or Data Agreement Touching Bvi
• Digital Asset Fund Structured Through Hong Kong Cis 2

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