A practical guide to a digital-asset fund structured through Hong Kong and the United Kingdom

Two of the most active regulatory environments for digital assets sit at opposite ends of a time zone. Hong Kong and the United Kingdom have each built licensing regimes for virtual-asset businesses, but they operate on different statutory bases, answer to different regulators, and impose different thresholds for what triggers a licence. A fund sponsor who treats the two as interchangeable will, almost certainly, get one of them wrong.

A digital-asset fund structured through Hong Kong and the United Kingdom requires a sequenced regulatory engagement in both jurisdictions: in Hong Kong under the mandatory virtual-asset trading platform licensing regime that commenced on 1 June 2023, and in the United Kingdom under the financial-promotions and registration requirements administered by the Financial Conduct Authority. The governing instrument in Hong Kong is the Anti-Money Laundering and Counter-Terrorist Financing Ordinance; the Securities and Futures Ordinance applies where any fund asset qualifies as a security or a futures contract. The sequence – entity, licensing posture, AML build, fund documentation – is not interchangeable, and the gate at each step is the one most sponsors underestimate.

This guide walks through the decision, the sequence and the common structural mistake – in the order a practitioner would address them.

What is the core decision a fund sponsor faces at the outset?

The first question is not "which jurisdiction?" It is "what does the fund actually do?" – because the answer determines which regulator applies, and in which jurisdiction, before a single entity is incorporated.

A fund that holds virtual assets as passive treasury is a different regulatory object from one that operates a trading strategy across centralised platforms. A fund that issues tokens to investors is different again from one that buys listed digital-asset securities on a regulated exchange. Each variant engages a different licensing trigger, and the Hong Kong and UK regimes draw those triggers in different places.

In Hong Kong, the critical question is whether the fund operates or will operate a centralised virtual-asset trading platform, or whether it deals in virtual assets that are securities or futures contracts. The former engages the Securities and Futures Commission as licensing authority under the mandatory regime. The latter engages the Securities and Futures Ordinance directly. A pure passive-holding structure with no platform component may fall outside both, but that analysis must be done carefully and documented.

In the United Kingdom, the threshold question is whether the fund communicates financial promotions and whether it carries on activities that constitute regulated activities under the Financial Services and Markets Act. A second, distinct question is whether the entity must be registered with the Financial Conduct Authority for cryptoasset anti-money laundering purposes (the UK's registration regime for cryptoasset businesses under the Money Laundering, Terrorist Financing and Transfer of Funds Regulations). These are not the same test, and a fund can trigger one without triggering the other.

The options on the table for a dual-jurisdiction structure typically look like this. First, a Hong Kong entity as the fund vehicle or management company, with a UK entity acting as a distribution or advisory arm. Second, a UK entity as the authorised manager, with a Hong Kong entity providing sub-advisory or execution services into Greater China and Asia-Pacific. Third, a parallel structure with two regulated entities, each carrying its own licence in its own jurisdiction, investing into a common pool through an offshore vehicle.

Which option fits depends on where the investors are, where the assets will be held or traded, where management decisions will be made, and what the AML and substance requirements in each jurisdiction actually demand. Getting the answer wrong at this stage is the most expensive mistake in the process.

How does the Hong Kong licensing regime apply to a digital-asset fund?

Hong Kong's mandatory licensing regime for centralised virtual-asset trading platforms, which commenced on 1 June 2023, is administered by the Securities and Futures Commission under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance. The licensing authority is the SFC. The obligation applies to any person carrying on a business of operating a centralised virtual-asset trading platform in Hong Kong, or actively marketing such a platform to Hong Kong investors.

A digital-asset fund does not, by that definition, automatically require a virtual-asset trading platform licence. What it requires depends on the structure. If the fund manager uses a licensed platform for execution, the platform must hold the relevant licence – not the fund manager. If the fund itself proposes to operate a platform, that is a different position entirely.

The more common licensing question for a fund manager in Hong Kong is whether the managed assets include virtual assets that qualify as securities or futures contracts under the Securities and Futures Ordinance. Where they do, the fund manager requires a licence under that Ordinance, and the Securities and Futures Commission is again the licensing authority. This is the regime that captures most professional fund managers investing in tokenised securities, digital asset derivatives, or hybrid instruments that blend traditional and crypto characteristics.

A fund that holds only non-security virtual assets – Bitcoin and Ether are the canonical examples in the current SFC classification position, though this should be verified before acting – may fall outside SFC licensing for the management activity itself. However, it will not fall outside the AML obligations. Customer due diligence, the FATF travel rule for virtual-asset transfers, and the full suite of Anti-Money Laundering and Counter-Terrorist Financing Ordinance obligations apply to virtual-asset service providers in Hong Kong regardless of whether a platform licence is required.

The practical implication for a fund sponsor: the AML build is not optional even if the licensing analysis comes back negative. Our desk regularly sees structures where the licensing question receives careful attention and the AML question is treated as administrative follow-on. It is not. The AML file – customer due diligence on investors, source-of-funds documentation, travel-rule procedures for any on-chain transfer – is a substantive regulatory deliverable in its own right.

What does the UK side of the structure require?

The United Kingdom operates two distinct regulatory tracks for a digital-asset fund with a UK presence, and a well-structured fund must address both.

The first track is the financial-promotions regime. Under the Financial Services and Markets Act, a financial promotion may only be communicated by, or with the approval of, an entity authorised by the Financial Conduct Authority, unless a relevant exemption applies. The rules were extended in 2023 to bring cryptoassets within scope – meaning that a UK-connected fund marketing digital-asset interests to UK persons must either be authorised or have its promotions approved by an authorised person. This catches offshore funds with UK investors far more readily than some sponsors expect.

The second track is the money laundering registration. Any firm carrying on cryptoasset activities in the United Kingdom as a business must be registered with the Financial Conduct Authority under the Money Laundering, Terrorist Financing and Transfer of Funds Regulations. This is a standalone obligation, separate from financial-promotions authorisation and separate from any fund-management authorisation. It has its own application, its own assessment process, and its own AML obligations. A fund manager who is already authorised by the FCA for other activities must still obtain the cryptoasset registration if the new fund involves cryptoassets within the definition.

Beyond these two tracks, a UK-based fund manager investing in virtual assets that are securities or collective investment schemes will engage the standard financial-services authorisation requirements under the Financial Services and Markets Act. This mirrors the Hong Kong position: the asset classification determines the regulatory instrument that governs management of the fund.

The cross-border interface between Hong Kong and the United Kingdom matters here in a specific way. A fund manager whose decision-making function sits in Hong Kong but who has a UK entity responsible for investor relations, distribution or approved-person approvals must be careful that the division of roles is genuine, documented, and not constructed purely to shift the regulatory trigger. Both the SFC and the FCA assess substance. A UK entity that does nothing substantive except hold an FCA authorisation, while all real decisions are made in Hong Kong, may fail the substance test in the UK and may also affect the Hong Kong licensing analysis.

What is the correct sequence for building the structure?

The sequence matters because each step has a gate, and passing the gate in the wrong order creates rework – or, worse, a compliance gap that only surfaces on an investor AML review or a regulatory inquiry.

Step 1 – Asset and strategy classification. Before incorporating any entity, identify every asset class the fund will hold and every activity the fund manager or sub-adviser will perform. Map each against the Hong Kong and UK licensing triggers. Document the analysis. This step is the foundation; everything downstream depends on it.

Step 2 – Jurisdiction allocation. Decide which jurisdiction will host the fund vehicle, the management company and any advisory or distribution entities. The decision turns on investor geography, substance requirements, AML obligations and the licensing posture determined in Step 1. Where an offshore vehicle sits above both jurisdictions – a Cayman or BVI holding structure is common – confirm that the offshore entity's activities do not create a separate licensing trigger in either jurisdiction.

Step 3 – Entity incorporation and substance build. Incorporate the entities in the chosen jurisdictions. For Hong Kong, this means engagement with the Companies Registry under the Companies Ordinance and, where applicable, the SFC for pre-application engagement. For the United Kingdom, incorporation precedes both the FCA registration and any authorisation application. At this stage, the significant controllers register requirement in Hong Kong – mandatory for Hong Kong-incorporated companies since 1 March 2018 – must be addressed: the fund manager must maintain accurate records of beneficial owners from day one.

Step 4 – AML and compliance programme. Before any investor is onboarded, both entities need a functioning AML and counter-terrorist financing programme. In Hong Kong, the programme must meet the requirements of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance and the SFC's published AML guidelines where the fund manager is within scope. In the United Kingdom, the programme must meet the Money Laundering, Terrorist Financing and Transfer of Funds Regulations and, for the cryptoasset registration, the FCA's specific expectations for virtual-asset businesses. The travel-rule obligation – requiring transmittal of originator and beneficiary information for virtual-asset transfers above the applicable threshold – applies in both jurisdictions and must be embedded in the operational procedures.

Step 5 – Fund documentation. The fund terms, subscription documents and investor-facing materials must reflect the licensing and AML position in both jurisdictions. The financial-promotions rules in the United Kingdom require that any offering document communicated to UK investors is either prepared or approved by an authorised person, or relies on a specified exemption. This is a common point of failure: a fund document prepared for institutional investors in Asia may not meet the UK financial-promotions standard without amendment or an approver.

Step 6 – Licensing applications and registrations. File the licence applications and registrations in the order dictated by the regulator's timelines. The SFC's pre-application process for virtual-asset trading platform licences is substantive and multi-stage; early engagement reduces the risk of late-stage structural changes. The FCA's cryptoasset registration process has had significant backlogs; applicants should allow material lead time and not commit to investor launch dates before registration is confirmed.

Step 7 – Ongoing compliance and reporting. Once operational, both the Hong Kong and UK entities carry continuing obligations: annual AML reviews, regulatory reporting, maintenance of the significant controllers register, and – for any fund manager within the Pillar Two scope – attention to the minimum top-up tax effective for fiscal years beginning on or after 1 January 2025 for in-scope groups. Pillar Two is not primarily a fund-management issue, but a fund manager within a large multinational enterprise group should confirm its position with its tax adviser.

The sequence is linear at each gate. An entity that skips Step 4 and onboards investors at Step 5 creates a retroactive AML exposure that is difficult to cure. An entity that files its licensing application before its substance build is complete in Step 3 risks a regulator querying whether the legal and compliance infrastructure is genuine.

In our cross-border practice, the most common structural error is not a licensing error – it is a timing error. The AML build and the fund documentation are treated as post-licensing deliverables. They are not. Both must be ready before any investor engagement, whether or not the licence has formally issued.

What cross-border complications arise between Hong Kong and the United Kingdom?

A Hong Kong and UK dual structure does not simply layer two independent regulatory regimes. The two systems interact in ways that create specific cross-border complications, and a fund sponsor who plans each jurisdiction in isolation will encounter them at the worst possible moment.

The first complication is substance allocation. Where a fund has management entities in both Hong Kong and the United Kingdom, both regulators will assess whether the entity in their jurisdiction has genuine decision-making substance. The SFC and the FCA both look at staffing, systems, and the locus of actual investment decisions. If a Hong Kong entity holds the SFC licence but the portfolio managers are all physically based in London, the SFC substance test is unlikely to be satisfied. The converse applies. This is not a problem that legal documentation alone solves; it requires genuine operational architecture.

The second complication is cross-border AML. A virtual-asset transfer that originates with a Hong Kong investor and is received by a UK entity, or vice versa, engages the travel-rule obligations in both jurisdictions. The travel-rule threshold, the information required, and the technical standards for transmittal differ between the two. A dual-jurisdiction structure must have a single coherent travel-rule procedure that meets both standards, not two separate procedures that may produce conflicting outputs on the same transaction.

The third complication is the enforcement channel. If the fund encounters a dispute with an investor or a counterparty, the enforcement route depends on where the fund assets sit, where the relevant contract was formed, and whether an arbitration agreement or a choice-of-court clause designates a specific forum. Hong Kong arbitration – seated in Hong Kong under the Arbitration Ordinance, with the HKIAC as a common institutional choice – is widely used for Asia-facing fund agreements. UK-seated arbitration or English-court litigation is more common for UK investors and UK-connected counterparties. A dual-jurisdiction fund that has inconsistent dispute-resolution clauses across its investor documents will face a forum conflict the first time a dispute arises.

The fourth complication is sanctions posture. Hong Kong implements United Nations sanctions and does not give domestic effect to unilateral sanctions measures of other states. The United Kingdom operates its own sanctions regime, which includes measures that go beyond the UN framework. A fund with investors and counterparties in both jurisdictions must maintain a sanctions-screening procedure that addresses both postures, and that is clear in its documentation about which sanctions regime applies to which contractual relationship.

A European family office considering a digital-asset fund vehicle across Hong Kong and London came to our desk in the first half of 2027. The structure proposed had the fund vehicle in Hong Kong, the distribution entity in the UK, and an offshore holding company in the Cayman Islands. The AML programme had been drafted for the UK entity and not adapted for Hong Kong. The travel-rule procedure referenced only the UK threshold. The dispute-resolution clauses were inconsistent across the three sets of subscription documents. We rebuilt the AML architecture to address both jurisdictions simultaneously, aligned the travel-rule procedure to the more demanding standard, and standardised the dispute-resolution clauses on Hong Kong arbitration with a governing-law election. The revised structure proceeded to investor onboarding without regulatory challenge.

For a further perspective on regulatory engagement for fintech entities in Hong Kong, our analysis of the engagement process is available at Fintech entity regulatory engagement in Hong Kong.

What is the common mistake and how does a well-structured route avoid it?

The most common mistake in a dual Hong Kong–UK digital-asset fund structure is conflating the licensing question with the compliance question – treating a favourable licensing analysis as a proxy for regulatory readiness.

It is not. A fund that correctly determines it does not require an SFC virtual-asset trading platform licence because it holds only non-security virtual assets through third-party platforms is still subject to the full AML and counter-terrorist financing obligation. A fund that correctly determines its UK promotional activity falls within an exemption is still required to register with the FCA for cryptoasset anti-money laundering purposes if the UK entity carries on cryptoasset activities as a business.

The licensing analysis tells you what authorisations to file for. It does not tell you what compliance infrastructure to build. Those are parallel workstreams, and they must proceed in parallel.

The second common mistake is underestimating the UK financial-promotions requirement. Sponsors accustomed to distributing in Asia, where the financial-promotions regime is less stringent, sometimes assume that investor outreach to UK-connected persons is a marketing question rather than a regulatory one. In the United Kingdom, it is a regulatory question. A single email to a UK-connected potential investor that contains an inducement to invest in a fund is, in principle, a financial promotion. The consequence of an unlawful financial promotion under the Financial Services and Markets Act can include the contract being unenforceable and civil liability. This is a risk that materialises before the fund is operational, not after.

The well-structured route avoids both mistakes by front-loading the analysis. The licensing review and the compliance programme design run concurrently from the moment the fund strategy is confirmed. The financial-promotions position for UK investors is resolved before any investor contact occurs. The AML programme is built and tested before any investor is onboarded. The travel-rule procedures are agreed with the fund's custodians and execution venues before the first on-chain transfer.

This is a more resource-intensive approach at the outset. It is materially less resource-intensive than a regulatory remediation after a gap is identified.

For groups expanding technology and digital-asset operations across Asia, our related matter on IP licensing and technology group expansion is at IP licensing: technology group expanding into Asia.

The sequence above describes the standard position. Your matter turns on the asset classification, the jurisdictions actually engaged by your investor base, and the order in which regulatory steps must be completed – which is where the route is won or lost. For a structured assessment of your digital-asset fund structure across Hong Kong and the United Kingdom, write to us at info@lockhartyip.com.

Decision checklist: key questions before you proceed

The following questions are not exhaustive, but they mark the decision gates that determine the regulatory and structural route for a dual-jurisdiction digital-asset fund. Work through them in order before committing to a structure.

• Have you classified every asset the fund will hold against both the Hong Kong and UK licensing triggers? Is the classification documented?
• Does any fund activity constitute operating a centralised virtual-asset trading platform in Hong Kong? If yes, has SFC pre-application engagement commenced?
• Does any fund asset qualify as a security or futures contract in Hong Kong? In the United Kingdom?
• Does the fund have, or will it have, any UK-connected investors or UK-facing promotional activity? Has the financial-promotions position been resolved before any investor contact?
• Does the UK entity carry on cryptoasset activities as a business, requiring FCA cryptoasset registration? Is that registration in place before UK operations begin?
• Is the AML and counter-terrorist financing programme complete for both jurisdictions, including travel-rule procedures that meet the more demanding of the two standards?
• Is genuine operational substance present in each jurisdiction where an entity holds a licence or registration?
• Are the dispute-resolution clauses in all investor documents consistent, and do they designate a forum appropriate for the fund's geographic profile?
• Is the sanctions-screening procedure calibrated for both the Hong Kong and UK sanctions postures?
• Has the significant controllers register for any Hong Kong-incorporated entity been maintained from the date of incorporation?

If the answer to any of these questions is uncertain, the uncertainty should be resolved before the structure is finalised. A gap at any point on this list can delay investor onboarding, require structural amendment after incorporation, or create a compliance exposure that is disproportionately costly to remedy.

If an earlier structuring attempt produced an incomplete or stalled result – a licensing application that was returned, an AML programme that failed investor due diligence, or a fund document that could not be approved for UK distribution – a second assessment can identify the precise gap and the steps still available. Write to us at info@lockhartyip.com.

Our full Tech & Web3 practice, including regulatory engagement and licensing support across Hong Kong and the principal offshore centres, is described at Tech & Web3 – Lockhart & Yip.

Related practices

• Sanctions & AML – AML programme design, travel-rule compliance and sanctions-screening across jurisdictions
• Holding Structures – offshore and Hong Kong holding entity architecture for cross-border investment vehicles

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Related

• Tech Web3
• Ip Licensing Technology Group Expanding Into Asia Matter
• Fintech Entity Regulatory Engagement Hong Kong

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