A digital-asset fund structured through Hong Mainland

The combination looks obvious on paper. Hong Kong holds the regulated entity, issues the interests, and handles the trading infrastructure. The Mainland provides the founding capital, the principals, and often the strategic rationale. Yet the two sides of that structure are governed by entirely different legal regimes – and the interface between them is precisely where most mandates unravel before they reach a regulator's desk.

A digital-asset fund with a Hong Kong operating entity and Mainland-connected capital requires licensing under the Securities and Futures Commission's virtual-asset trading platform regime or, where a managed-account or collective-investment structure is involved, under the relevant licensing provisions of the Securities and Futures Ordinance. The governing instrument for virtual-asset service providers is the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, as amended to introduce the mandatory virtual-asset trading platform licensing regime that commenced on 1 June 2023. The cross-border element – Mainland China-origin capital, Mainland principals, or a Mainland feeder – creates a layered set of regulatory, AML, and structural questions that must be resolved in sequence before a single document is filed.

This note sets out when a foreign principal needs this structure, the route we run, the documents the client must own, and the cross-border interface that determines whether the structure survives regulatory scrutiny.

When does a foreign principal actually need this structure?

The trigger is almost always structural complexity: a principal has committed – or intends to commit – Mainland-origin capital to a digital-asset strategy, and the capital needs a regulated home that can transact, custody, and distribute in compliance with the applicable licensing regime.

Four patterns bring this to a head. First, a Mainland-connected family office or investment vehicle has accumulated digital assets offshore and needs a Hong Kong-regulated structure to manage them going forward. Second, a foreign fund manager wants to accept Mainland-origin capital into a virtual-asset strategy and recognises that the source-of-funds and AML burden is heavier than for a conventional fund. Third, a tech group with operations in both Hong Kong and the Mainland wants to issue tokenised interests or manage a treasury in digital assets, and the Hong Kong licensing question cannot be avoided. Fourth, a principal already operating a digital-asset business wants to regularise its position as the 1 June 2023 licensing regime beds in and enforcement posture sharpens.

In every case, the question is the same: which licence is required, in whose name, and how does the Mainland dimension change the compliance picture? That question cannot be answered by looking at the Hong Kong side alone.

In our cross-border practice, we see the complexity most acutely when the fund's investment committee or controlling persons are Mainland residents, because the source-of-funds and travel-rule obligations layer on top of the licensing question before a structure can be presented to locally licensed Hong Kong counsel for execution.

What is the governing regulatory regime and who applies it?

The Securities and Futures Commission – Hong Kong's primary securities and markets regulator – is the licensing authority for virtual-asset trading platforms and for fund managers whose strategies involve virtual assets that constitute "securities" or "futures contracts" under the Securities and Futures Ordinance.

The Anti-Money Laundering and Counter-Terrorist Financing Ordinance, as amended, introduced the mandatory VATP licensing regime (the framework under which centralised virtual-asset trading platforms must hold a licence issued by the SFC). For a fund structure, the critical question is whether the vehicle is operating a trading platform, managing a pool of virtual assets on a discretionary basis, or both. Each path engages a different licence type – and a different set of ongoing obligations.

Where the virtual assets involved are characterised as securities or futures contracts, the Securities and Futures Ordinance applies in parallel. The two regimes are not mutually exclusive. A fund that trades tokenised securities on a centralised platform may need to engage both.

The AML and travel rule (the FATF standard requiring originator and beneficiary information to accompany virtual-asset transfers) applies to all virtual-asset service providers in scope. For a fund with Mainland-connected investors, the travel-rule obligation intersects with the customer due diligence and source-of-funds file in a way that affects onboarding timelines materially.

Separately, for fiat-referenced stablecoins, the Hong Kong Monetary Authority has introduced a licensing regime for issuers that commenced in 2025. If the fund's strategy involves stablecoin settlement or issuance, parties should verify the current perimeter of that regime before proceeding.

The sequence above describes the standard position. Your matter turns on the specific assets, the structure of the investment vehicle, and the jurisdictions actually engaged by the capital flow and the controlling persons – which is where the route is won or lost.

To discuss how the SFC licensing framework and the AML obligations apply to your proposed digital-asset fund, contact info@lockhartyip.com.

How does the Mainland China dimension change the picture?

Mainland China does not permit its residents to operate or invest in virtual-asset trading platforms as a general matter, and the regulatory position in the Mainland is materially different from the Hong Kong regime. That divergence creates the central cross-border risk: a structure that is fully compliant in Hong Kong may still have characteristics that expose Mainland-connected persons to regulatory scrutiny under Mainland rules.

Three specific interfaces matter most. First, outbound capital controls (the Mainland's regime governing cross-border capital flows) mean that Mainland-origin capital entering a Hong Kong fund vehicle must be channelled through a permissible mechanism – typically a qualified investor programme or a recognised offshore holding vehicle – and the source-of-funds documentation must trace that route precisely. A gap in the chain is an AML exposure on the Hong Kong side.

Second, where Mainland residents are named as controlling persons, beneficial owners, or members of the investment committee, the SFC's fit-and-proper and AML obligations require a full beneficial-ownership analysis. The Significant Controllers Register requirement under the Companies Ordinance (Cap. 622) – in force since 1 March 2018 – applies to the Hong Kong entity, and any Mainland-resident controller must be disclosed and verified.

Third, any cross-border data flow between the Hong Kong vehicle and a Mainland affiliate or investor – including investor onboarding data, net-asset-value reporting, and trading records – is subject to the Mainland's data-localisation and cross-border data-transfer rules. A fund manager who has not reviewed the data architecture before launch typically discovers this problem at the worst possible moment: when an investor needs to be onboarded or a regulatory request arrives.

The structural answer to most of these issues is a clean separation between the Hong Kong-regulated entity and any Mainland-facing activity, with the cross-border flows documented at the outset. That separation is not difficult to achieve, but it requires deliberate design. Structures assembled informally – often by founders who assumed the Hong Kong side was sufficient – regularly fail this analysis.

For guidance on the SFC's cross-border requirements and how they interact with Mainland capital controls, see also our practice notes on Tech & Web3 advisory and cross-border data agreements touching the Mainland.

What is the step-by-step route we run?

The engagement runs in four phases, each with a defined handoff point to locally licensed Hong Kong counsel who handle the filing and regulatory engagement in Hong Kong.

Phase 1 – Structure mapping. We review the proposed fund structure against the licensing perimeter: which entities need which licence, which persons must be disclosed, and which capital flows require documentation before the structure can operate. This phase produces a structure memorandum and a regulatory map. It is the document the client uses internally to align the investment committee and the compliance function before any external filing is made.

Phase 2 – AML and source-of-funds architecture. We prepare the AML framework for the fund: the customer due diligence procedures, the travel-rule implementation approach, and the source-of-funds file for Mainland-connected investors. This work runs in parallel with Phase 1. It is the most time-consuming element for funds with complex beneficial-ownership chains, and it cannot be compressed without creating a compliance gap.

Phase 3 – Document preparation. We prepare or review the fund's constitutional documents, the investment management agreement, the subscription documents, and the investor disclosure materials. The cross-border dimensions – Mainland investor representations, data-transfer consents, beneficial-ownership warranties – are built into the documents at this stage, not retrofitted later.

Phase 4 – Regulatory engagement and licensing. Locally licensed Hong Kong counsel join at this phase to manage the SFC filing, the Companies Registry matters, and any direct regulatory correspondence. We provide the international and cross-border analysis as needed and remain available to address SFC queries that touch the fund's cross-border or AML position.

The total timeline depends on the complexity of the beneficial-ownership chain and the licensing category involved. Structures with straightforward ownership and a single licence category move materially faster than those involving multiple Mainland controllers, a feeder structure, or a mixed portfolio of security-type and non-security virtual assets.

What documents and decisions does the client own?

A common error in digital-asset fund mandates is treating the legal documentation as the adviser's problem. The documents are the client's instrument of governance. The principals must understand what they are signing and why each decision was made.

Three decisions require the principals' direct involvement. First, the licensing strategy: whether to apply for a VATP licence, a Type 9 asset-management licence, or both depends on the fund's strategy and investor base. That decision cannot be made by counsel; it requires the principals to commit to a defined scope of activity.

Second, the beneficial-ownership disclosure: every Mainland-connected controller, beneficial owner, and person with significant influence must be identified and verified before any filing. The principal must provide complete and accurate information at the outset. Late disclosure of a Mainland controller is the single most common cause of regulatory delay in mandates of this kind.

Third, the data architecture: the fund must decide, before launch, how investor data flows between the Hong Kong entity and any Mainland affiliate, and how that flow is documented and consented to. This is a board-level decision, not a back-office one.

On the document side, the minimum set for a managed-account or collective-investment structure includes: the constitutional documents of the Hong Kong entity; the fund rules or limited-partnership agreement; the investment management agreement; the subscription agreement and investor questionnaire (including AML and source-of-funds representations); and the internal AML and compliance manual. Each document must be consistent with the others and with the regulatory filings.

Consider a scenario from our cross-border practice. An Asian technology group with a Hong Kong holding entity and Mainland-resident principals sought to establish a digital-asset treasury management function in late 2024. The initial structure had been assembled without a full AML review and without addressing the travel-rule obligations for the planned institutional investor base. We re-mapped the structure, rebuilt the AML framework, and prepared the investment management agreement and subscription documents with the cross-border beneficial-ownership chain correctly documented. The group proceeded to regulatory engagement on a clean footing.

If an earlier filing, structure, or AML review produced an adverse or stalled result, a second read can identify the structural error and the routes still open. Write to info@lockhartyip.com.

What do foreign managers get wrong about Hong Kong's digital-asset licensing regime?

The most persistent misconception is that Hong Kong's licensing regime is optional for funds that do not operate a trading platform. It is not. A fund manager exercising discretion over a pool of virtual assets that includes securities-type tokens needs a Type 9 licence under the Securities and Futures Ordinance, regardless of whether it operates a platform. The VATP licensing requirement is a separate obligation that applies to centralised trading infrastructure.

A related error is assuming that a Cayman Islands or BVI fund vehicle above the Hong Kong entity insulates the structure from Hong Kong regulatory requirements. It does not. The SFC's licensing analysis follows the activity and the persons performing it, not the domicile of the fund vehicle. A BVI fund managed by a Hong Kong-based investment manager is a Hong Kong-regulated activity.

A third error – specific to Mainland-connected structures – is treating the AML file as a static document prepared at launch. The travel-rule obligation and the ongoing customer due diligence requirement mean that the AML file must be maintained and updated as the investor base and the beneficial-ownership chain evolve. A fund that onboarded investors carefully at launch but has not refreshed its AML file as controllers changed is exposed.

Finally, some foreign managers assume that a stablecoin settlement layer removes the need for a licence because stablecoins are "not virtual assets" in the relevant sense. The position on fiat-referenced stablecoins has changed with the HKMA's 2025 licensing regime for stablecoin issuers. Funds using stablecoin settlement rails should verify the current perimeter of that regime before relying on any earlier analysis.

Decision matrix: situation, instrument, route, and risk

Situation A: a foreign fund manager wants to manage a pool of virtual assets that includes tokenised securities, with a Hong Kong-domiciled management entity and Mainland-origin investors. Instrument: Securities and Futures Ordinance Type 9 licence for the management entity; AML and travel-rule obligations under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance. Route: structure mapping, AML architecture, document preparation, SFC licensing application managed by locally licensed Hong Kong counsel. Risk: undisclosed Mainland beneficial owners delay or prevent licensing; an incomplete AML file creates ongoing exposure.

Situation B: a Mainland-connected principal wants to operate a centralised virtual-asset trading platform from Hong Kong, with institutional investors including family offices in Hong Kong, Singapore, and the UAE. Instrument: VATP licence under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance; SFC as licensing authority. Route: the same four-phase route described above, with an additional data-architecture review given the Mainland-connected founding team. Risk: a Mainland-resident controlling person who has not been fully disclosed creates a fit-and-proper issue; the data flow between the Hong Kong platform and a Mainland affiliate triggers cross-border data-transfer rules.

Situation C: a Hong Kong holding entity above a Mainland operating group wants to launch a tokenised product that may constitute a collective investment scheme. Instrument: Securities and Futures Ordinance (securities and collective investment scheme provisions); potentially also the VATP regime depending on the distribution model. Route: a preliminary characterisation analysis before any document is prepared; if a collective investment scheme is confirmed, the licensing and disclosure requirements are more extensive and the timeline is longer. Risk: a product launched without the characterisation analysis in place is an unlicensed offering.

In each situation, the cross-border element – Mainland capital, Mainland principals, or a Mainland data nexus – adds a layer of analysis that cannot be handled by a Hong Kong licensing filing alone. That is precisely where international counsel co-ordinating with locally licensed Hong Kong firms adds the most value.

Self-assessment checklist before instructing counsel

Before a formal engagement, principals should be in a position to answer the following questions. The answers shape the scope of the mandate and the timeline.

What category of virtual-asset activity will the fund conduct: trading, managed-account discretion, custody, issuance, or a combination?
Are any of the virtual assets involved likely to constitute "securities" or "futures contracts" under Hong Kong law?
Who are the beneficial owners, controlling persons, and investment-committee members? Are any Mainland residents?
What is the source of the founding capital, and through which mechanism did it leave the Mainland?
What is the fund's investor base: Hong Kong professional investors, Mainland institutions, international family offices?
Does the fund's operational model involve a centralised platform, or is it a pure managed-account structure?
Does any part of the strategy involve fiat-referenced stablecoins as a settlement layer or as an investment asset?
Has a data-architecture review been conducted for any Mainland-facing data flows?
Has an earlier regulatory filing or AML review been attempted? If so, what was the outcome?

A principal who can answer these questions confidently is ready for a focused engagement. A principal who cannot is best served by a preliminary structure-mapping call before document work begins.

For a second cross-border perspective from our practice – the enforcement and dispute angle that arises when a digital-asset structure is contested – see our matter note on cross-border agreements and dispute resolution.

Interaction with sanctions, AML, and the international compliance file

Hong Kong implements United Nations sanctions and does not give domestic effect to unilateral measures of other states. For a digital-asset fund, that posture matters practically: the sanctions-screening obligation is real and applies to every investor and counterparty, but the screening list is the UN consolidated list, not the sanctions lists of other jurisdictions.

That distinction does not reduce the compliance burden. It changes its shape. A fund with investors or counterparties in jurisdictions subject to unilateral measures imposed by the United States, the European Union, or the United Kingdom needs to understand precisely which sanctions apply to which entities within the fund structure, and to maintain a documented compliance file that reflects that analysis. The internationally licensed members of our desk review these positions regularly.

For funds with Mainland-connected principals, the practical interaction is between the UN-sanctions screening obligation, the source-of-funds file for Mainland-origin capital, and the SFC's fit-and-proper requirements. All three converge on the same underlying question: are the persons and capital associated with the fund clean, documented, and verifiable? A compliance file that answers that question in a disciplined way is the single most effective risk-management tool at the fund's disposal.

Related practices

Tech & Web3 – virtual-asset licensing, token structuring, Web3 regulatory engagement
Sanctions & AML – sanctions-neutral contracting, source-of-funds files, travel-rule implementation
Holding Structures – cross-border holding entity design for digital-asset and technology groups

Frequently asked questions

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

The principal risks are licensing exposure, AML gaps, and undisclosed beneficial ownership. A fund that conducts regulated activity without the correct SFC licence is operating an unauthorised scheme. A fund with Mainland-connected investors that has not built a complete source-of-funds and travel-rule file is exposed on the AML side. Undisclosed Mainland controllers create both a licensing risk and a Companies Ordinance compliance issue under the Significant Controllers Register requirement. Each risk is manageable with early advice, but each compounds rapidly once a filing or a regulatory interaction has already occurred.

How does the cross-border element affect a digital-asset fund structured through Hong Kong and Mainland China?

The Mainland dimension adds three layers to an otherwise Hong Kong-centred analysis. First, Mainland-origin capital must enter the fund through a documented and permissible mechanism. Second, Mainland-resident controlling persons must be fully disclosed and verified for both SFC licensing and the Significant Controllers Register. Third, any data flow between the Hong Kong entity and a Mainland affiliate is subject to the Mainland's cross-border data-transfer rules, which must be addressed in the fund's operational design before launch, not after.

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

The route runs in four phases: structure mapping to identify which entities need which licence; AML and source-of-funds architecture for Mainland-connected investors; document preparation covering constitutional documents, the investment management agreement, and subscription materials; and regulatory engagement and SFC licensing handled by locally licensed Hong Kong counsel. International and cross-border counsel coordinate the first three phases and remain available during regulatory engagement to address queries touching the cross-border or AML position. Timeline depends on the complexity of the beneficial-ownership chain and the licensing category involved.

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

A digital-asset fund structured through Hong Kong and Mainland China