Matter note: a digital-asset fund structured through Hong Kong and the CIS

A fund manager based in a CIS jurisdiction had built a working digital-asset strategy. The returns were credible, the investor base was growing, and the operational infrastructure – custody, execution, reporting – was in place. What the structure lacked was a jurisdictional anchor that would satisfy institutional investors and give the manager a clear licensing and AML posture under a recognised common-law regime. That gap was the starting point for this matter.

A digital-asset fund structured through Hong Kong and the CIS requires careful layering: a Hong Kong entity with the correct licensing posture under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance and, where the fund's assets constitute securities or futures contracts, under the Securities and Futures Ordinance as well, sitting above or alongside the CIS operating and investor-facing layer. The sequencing of that structure – which entity is established first, which regulatory engagement comes before the other – determines whether the window for a clean launch remains open.

This note describes the situation, the cross-border constraint, the route chosen, and the transferable lesson. No client-identifying information appears anywhere in it.

What was the situation, and what made it a cross-border problem?

The fund manager had been operating under a CIS regulatory framework that permitted digital-asset activity within its domestic perimeter. That perimeter, however, carried limited recognition outside the region. Institutional allocators – family offices in the Gulf, corporate treasuries in Europe, and a cluster of professional investors in East Asia – were prepared to commit capital only if the fund's management entity sat in a jurisdiction where AML standards, licensing obligations and investor-protection rules were visibly enforced by a competent authority. Hong Kong met that description.

The cross-border problem was structural, not merely administrative. Placing a Hong Kong management entity at the head of the structure meant engaging the licensing regime under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance for the centralised virtual-asset trading platform function, and assessing whether any of the fund's digital assets crossed the threshold into securities or futures contracts under the Securities and Futures Ordinance. In the CIS, the existing operating entity had contractual relationships with investors and service providers that could not simply be unwound. The task was to integrate the two layers without creating a conflict between their respective regulatory obligations.

Foreign counsel engaged on the CIS side had structured similar vehicles for private equity and hedge funds. Their instinct was to replicate that model: a Cayman fund vehicle, a Hong Kong general partner, a CIS advisory entity below. That instinct was reasonable for a conventional asset class. For digital assets touching Hong Kong, it was incomplete. The Securities and Futures Commission's licensing perimeter and the HKMA's emerging stablecoin-issuer regime – which commenced in 2025 and whose current scope should be verified before reliance – added dimensions that a standard fund-formation analysis did not fully capture.

What were the specific regulatory constraints the structure had to resolve?

Three constraints shaped the structure. Each arose from a different instrument, and each had a different resolution timeline.

The first was the virtual-asset trading platform licensing obligation. The mandatory licensing regime for centralised virtual-asset trading platforms commenced on 1 June 2023 under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance. The Securities and Futures Commission is the licensing authority. Any entity carrying on a business in a regulated virtual-asset service in Hong Kong, or actively marketing to Hong Kong investors, falls within the regime's perimeter. The fund manager's Hong Kong entity was not itself operating a trading platform. But the structural analysis required confirming that the Hong Kong entity's activities – portfolio management, order routing to external platforms, investor reporting – did not bring it within the licensing definition without a separate SFC authorisation.

The second constraint was the securities-overlap question. Where a virtual asset is a "security" or "futures contract" as defined under the Securities and Futures Ordinance, SFC licensing under that ordinance applies in parallel. The fund's portfolio included assets that had not been definitively characterised. A clean structure required a characterisation analysis before the first investor commitment, not after. This is a point that generic offshore fund counsel frequently defer; deferring it in a Hong Kong-anchored structure creates a material gap in the licensing file.

The third constraint was the AML and travel-rule obligation. Virtual-asset trading platforms subject to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance must carry out customer due diligence and comply with the FATF travel rule for virtual-asset transfers. Even if the Hong Kong entity was not itself the platform, it was the entity interfacing with platforms on behalf of the fund. The AML procedures at the Hong Kong level needed to be calibrated to the obligations of the counterparty platforms, not just to the entity's own formal status.

How was the CIS layer integrated, and what were the friction points?

The CIS operating entity presented two friction points. The first was source-of-funds documentation. Investors who had been onboarded under the CIS entity's domestic AML procedures had documentation that met local standards. Those standards did not map cleanly onto what a Hong Kong-supervised entity or a Cayman registered fund would require for institutional investors. A re-onboarding exercise was necessary for a substantial portion of the existing investor base.

The second friction point was contractual. The CIS entity had arrangements with execution venues and custodians that were structured as principal relationships: the CIS entity was the contracting party, not an agent of the fund. Migrating those relationships to the new Hong Kong management entity – or restructuring them so the fund vehicle was the principal – required renegotiation, not just novation. Some counterparties had their own AML requirements on the substituted entity, which extended the timeline.

Our cross-border practice sees this pattern regularly. The CIS-to-Hong Kong migration is rarely a clean lift-and-shift. The CIS side has operational momentum; the Hong Kong side has regulatory formality. The transition window – the period during which the old structure is still running and the new one is not yet fully licensed and documented – is the highest-risk phase of the matter.

In this matter, the CIS entity remained the investor-facing entity during the transition, with a documented sub-advisory arrangement flowing up to the Hong Kong management entity. That arrangement was structured to avoid triggering a conclusion that the Hong Kong entity was already carrying on a regulated activity before its licensing position was settled. The sequencing of that documentation was the turning point.

What was the sequence, and where did the turning point arise?

The sequence ran in four stages. Stage one was the characterisation analysis: every digital asset in the portfolio was assessed against the Securities and Futures Ordinance definition. Assets that fell within the securities perimeter were identified, and the implications for SFC licensing were mapped. This stage had to be completed before any Hong Kong entity was incorporated, because the incorporation and activity profile of the entity depended on the outcome.

Stage two was entity structuring. The Hong Kong management entity was incorporated under the Companies Ordinance (Cap. 622) once the characterisation analysis was settled. The Significant Controllers Register was established and maintained from the date of incorporation, as required since 1 March 2018. The entity's constitutive documents, investment management agreement and compliance manual were drafted to reflect the licensing analysis from stage one.

Stage three was the CIS-layer integration: the re-onboarding of existing investors, the renegotiation of key counterparty arrangements, and the drafting of the sub-advisory framework. This was the operationally complex stage. The timeline extended beyond the initial estimate because two custodian counterparties required their own KYC and AML review of the incoming Hong Kong entity before consenting to the revised arrangements.

Stage four was the regulatory engagement. The SFC licensing application, where required, and the ongoing compliance obligations under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance were the formal closing steps. The AML manual, the travel-rule procedures and the source-of-funds file were submitted as part of that engagement.

The turning point was in stage three. The sub-advisory agreement between the CIS entity and the Hong Kong management entity had been drafted with a commencement date tied to a regulatory milestone. When that milestone was delayed by the custodian review, the CIS entity's continued investor-facing activity fell into a documentation gap: the new arrangement had not yet commenced, but the old one had been partially superseded by the drafting. We identified that gap before it was tested by a regulator or a counterparty. The documentation was corrected with a bridging arrangement that maintained continuity without overstating the Hong Kong entity's regulatory status.

That correction – identifying and closing a documentation gap in the transition phase before it hardened into a compliance deficiency – is the single most transferable lesson from this matter. The transition window is not a neutral period. It is when structural errors embed.

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. To discuss how the Hong Kong licensing and AML position applies to your cross-border fund structure, contact info@lockhartyip.com.

What was the outcome, and what does it mean for similar structures?

The structure closed. The Hong Kong management entity was established with a coherent licensing posture, documented AML procedures, and a functional sub-advisory relationship with the CIS operating entity. The existing investor base was re-onboarded to the required standard. The new institutional investors committed on the basis of the Hong Kong entity's compliance file, not the CIS entity's domestic authorisation.

The outcome was qualitative: a structure that could be presented to institutional investors as regulatorily coherent, rather than one that required explanation of its gaps. That distinction is the one institutional allocators actually price. A fund with a Hong Kong anchor and a documented AML posture is not automatically better than one without – but it is addressable to a wider class of investor.

The transferable lessons are three. First, the characterisation of the digital assets in the portfolio must precede the structuring of the management entity, not follow it. The licensing perimeter under the Securities and Futures Ordinance is asset-specific, and the entity's activity profile depends on that characterisation. Deferring it creates a gap that is harder to close once the entity is in operation.

Second, CIS-originating structures carry a source-of-funds documentation burden that is structurally different from structures originating in Western Europe or East Asia. The re-onboarding exercise is not a formality. It is a substantive compliance step that requires time and, in some cases, investor co-operation that cannot be assumed. Building that time into the transition plan is not pessimism; it is accurate scoping.

Third, the transition window between the old structure and the new one is the highest-risk phase, not the pre-launch phase. Most structural errors in cross-border digital-asset fund formations arise not from a wrong decision about structure but from a documentation gap during the migration. A second read of the transition documentation – by counsel who were not the primary drafter – is a low-cost intervention with a high catch rate.

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. For a structured assessment of a digital-asset fund's cross-border position across Hong Kong and the CIS, write to info@lockhartyip.com.

What foreign counsel frequently misread about Hong Kong's digital-asset regime

Foreign counsel – including experienced fund lawyers from offshore centres – frequently approach Hong Kong's digital-asset licensing regime as a single question: is the platform licensed? That framing misses the layered structure of the regime.

The Anti-Money Laundering and Counter-Terrorist Financing Ordinance applies to virtual-asset service providers operating centralised trading platforms. The Securities and Futures Ordinance applies where the assets are securities or futures contracts, regardless of whether a platform is involved. Those two regimes can apply simultaneously, and the entity that triggers them may not be the one that foreign counsel initially identified as the regulated entity.

In our cross-border practice, we regularly encounter structures where the offshore general partner has been carefully kept outside Hong Kong, but the portfolio management function – which sits in Hong Kong and interfaces with licensed platforms on behalf of the fund – has not been assessed against either regime. That gap is not theoretical. It is the kind of structural oversight that a regulator or a sophisticated counterparty can identify from the fund documentation.

The further complication in a CIS-to-Hong Kong structure is that the CIS entity's regulatory authorisation, however well-maintained, does not inform the Hong Kong analysis. The two regimes operate independently. A manager who is compliant in Kazakhstan or Georgia or Uzbekistan – each of which has its own digital-asset regulatory position that is evolving – has not thereby satisfied the Hong Kong licensing and AML obligations. The Hong Kong analysis runs from first principles, applied to the activities of the Hong Kong entity.

The stablecoin-issuer regime that commenced under the HKMA in 2025 adds a further dimension for funds holding or distributing fiat-referenced stablecoins. The current perimeter and commencement mechanics should be verified before a structure is finalised. We note that fact here not to raise uncertainty but because the window for structuring ahead of a new licensing requirement – rather than scrambling to retrofit after it – is precisely the kind of closing window that determines whether a structure is well-built or merely functional.

For a preliminary read on your digital-asset fund's licensing and AML position across Hong Kong and the relevant CIS jurisdiction, email info@lockhartyip.com.

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• Tech & Web3 – licensing, AML and entity structuring for digital-asset businesses in Hong Kong
• Sanctions & AML – source-of-funds files, counterparty review and compliance documentation across jurisdictions

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