A digital-asset fund structured through Hong Kong and the UAE

Two regulators, two licensing windows, and a capital base that often spans a third jurisdiction: this is the operating reality for a principal establishing a digital-asset fund across Hong Kong and the UAE. Neither regime is optional once you touch both markets, and neither waits for the other to move first. The structural question – which entity does what, which regulator has primary jurisdiction, and where the AML obligations actually sit – must be answered before the first investor commitment lands.

A digital-asset fund structured through Hong Kong and the UAE typically involves a Hong Kong-licensed or registered entity managing or distributing a fund whose capital, investor base or operating counterparties engage the UAE's regulatory perimeter, requiring coordinated licensing under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance and the relevant UAE financial-services regime, with AML obligations that run in parallel across both jurisdictions from the date the first investor relationship is established.

This note sets out the trigger that brings the structure to a head, the route Lockhart & Yip runs with locally licensed counsel in each seat, the documents and decisions the principal must own, and the cross-border interface that foreign advisers most often underestimate.

When does a foreign principal actually need this structure?

The trigger is almost always one of three things. A principal has capital from Gulf or European investors and needs a credible, regulated distribution point in Asia. Or an existing structure – often a BVI or Cayman fund managed informally from one seat – has grown past the point where informal operation is defensible and a licensing event is imminent. Or an investor in the fund has asked a question about regulatory status that the principal cannot answer cleanly.

In our cross-border practice, we see the second trigger most often: a fund that began as a small, founder-managed vehicle has attracted outside capital and now faces scrutiny from institutional co-investors or a secondary distribution partner. The absence of a licensing analysis, a proper AML policy, or a clear record of the decision-making chain becomes the problem – and it surfaces at the worst possible time, when a significant investor or a counterparty exchange is conducting its own due diligence.

The Hong Kong and UAE combination is particularly common for funds with a Mainland China or broader Asia-Pacific investment mandate and a Gulf or European investor base. Hong Kong provides the proximity to Mainland counterparties and the common-law enforcement environment. The UAE – particularly the Abu Dhabi Global Market and the Dubai International Financial Centre – provides a regulated on-ramp for Gulf-region capital and a base for regional investor relations. Neither seat is decorative; both carry real regulatory obligations.

The structural complexity trigger also arises when the fund is taking positions across both crypto-native assets and tokenised securities. That split engagement activates different regulatory perimeters simultaneously. A digital asset that is a "security" under Hong Kong law engages the Securities and Futures Commission's licensing regime as well as the virtual-asset trading platform framework. The analysis in the UAE follows a parallel but distinct track. Getting this wrong at the outset is expensive to unwind.

What are the governing instruments and the regulators that actually apply?

In Hong Kong, the primary instruments are the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, which houses the virtual-asset trading platform (VATP) licensing regime for centralised exchanges, and the Securities and Futures Ordinance, which applies where the digital assets in question are securities or futures contracts. The Securities and Futures Commission (SFC) is the licensing authority for both tracks. The mandatory VATP licensing regime commenced 1 June 2023; from that date, operating a centralised virtual-asset trading platform serving Hong Kong investors without a licence became non-compliant.

A fund vehicle – as distinct from a trading platform – does not typically require a VATP licence. But it almost certainly requires SFC authorisation or registration as a collective investment scheme, or an applicable exemption, if it is marketed to Hong Kong investors. The distinction between managing a fund for offshore investors from a Hong Kong base and distributing a fund to Hong Kong-based investors matters enormously and must be resolved early. In our practice, counsel on our desk regularly see this line drawn in the wrong place in first-draft structures.

For AML obligations, the Anti-Money Laundering and Counter-Terrorist Financing Ordinance applies to VATPs and to a range of other financial-services activities. Customer due diligence, the FATF travel rule for virtual-asset transfers, and ongoing monitoring obligations all attach from the point of licensing. These are not aspirational – they are conditions of the licence and are actively examined in the SFC's supervisory process.

In the UAE, the applicable regulatory perimeter depends on the seat. For funds domiciled or operating in the Abu Dhabi Global Market, the Financial Services Regulatory Authority (FSRA) has its own digital-asset regulatory regime. For the Dubai International Financial Centre, the Dubai Financial Services Authority (DFSA) applies. For activity in mainland UAE (onshore), the Securities and Commodities Authority (SCA) and the Virtual Assets Regulatory Authority (VARA) are the relevant bodies. Each carries its own licensing category, AML obligations and capital requirements. The choice of UAE seat is itself a strategic decision and affects the fund's investor eligibility, the terms of any passporting arrangement and the ongoing compliance burden.

Hong Kong implements United Nations sanctions and does not give domestic effect to unilateral measures of other states. The UAE has its own sanctions regime. A fund operating across both jurisdictions must maintain a compliance posture that is coherent across two distinct sanctions frameworks – a point that the fund's AML policy must address explicitly.

How does the Hong Kong–UAE cross-border interface actually work?

The cross-border interface between Hong Kong and the UAE is not a single clean line. It is a series of operational decisions that each carry a regulatory consequence in one or both seats.

Consider a fund managed from a Hong Kong entity, invested in digital assets across Asia, and distributed to investors through a UAE-domiciled vehicle. The Hong Kong entity is the manager; the UAE entity is the fund or the distribution vehicle. The investor relationship begins in the UAE. The investment decisions are made in Hong Kong. The custody may sit in a third jurisdiction – or on-chain, which raises its own questions for both regulators.

In that structure, the Hong Kong regulator is concerned with the licensing status of the manager and the source-of-funds and AML profile of the investor relationships flowing into the Hong Kong entity. The UAE regulator is concerned with the investor eligibility rules applicable to the UAE vehicle, the AML obligations of the UAE entity in its own right, and whether the manager – a foreign entity – needs its own authorisation in the UAE before it can exercise investment discretion over a UAE-domiciled fund.

These are not theoretical questions. They produce concrete filing obligations, disclosure requirements and ongoing compliance costs that must be modelled before the structure is finalised. A structure that is compliant in Hong Kong but has not been cleared with the relevant UAE regulator is not a compliant structure – it is a half-built one.

The good news is that both Hong Kong and the major UAE financial centres have developed substantive digital-asset regulatory regimes and are, in practice, familiar with cross-border fund structures. The engagement process with both regulators can be managed in parallel if the documents are prepared with both sets of requirements in mind from the start. Where they diverge – and they do diverge, particularly on investor classification, custody standards and AML reporting – the divergence must be addressed in the fund documents, not papered over.

For enforcement, Hong Kong's common-law environment means that fund documents, manager agreements and investor subscription documents governed by Hong Kong law are enforceable in a well-tested court system with English as an official working language. The major UAE financial centres operate their own common-law court systems – the ADGM Courts and the DIFC Courts – and there is a developing body of cross-recognition practice between those courts and the Hong Kong courts. For a fund operating in both seats, the governing-law and dispute-resolution clauses in every document deserve the same attention as the licensing strategy.

The sequence above sets out the standard cross-border architecture. Your matter turns on the actual assets, the investor base, the jurisdictions of the investors, and the decisions already made – which is where the structure is built or broken.

For a structured assessment of your cross-border licensing position across Hong Kong and the UAE, write to us at info@lockhartyip.com.

What is the route, step by step, and where does locally licensed counsel join?

The route runs in five stages, and locally licensed counsel join at stages two and four.

Stage one: regulatory mapping. Before any entity is incorporated, we conduct a regulatory mapping exercise across both seats. This identifies the licensing category each proposed activity falls into in Hong Kong and in the relevant UAE jurisdiction, the AML obligations that attach, the investor eligibility rules, and the custody and reporting requirements. The output is a structure memo that the principal can take to their board and their investors. This stage is led by our desk; no local Hong Kong licence is needed for this analysis.

Stage two: Hong Kong entity and licensing. Where a Hong Kong entity is required – as manager, sub-adviser, or distribution vehicle – we work alongside locally licensed Hong Kong firms on the incorporation and, where applicable, the SFC licensing application or the exemption analysis. We prepare the regulatory engagement strategy and the document set; locally licensed counsel handle the filings with the Companies Registry and the SFC. The client must decide at this stage whether the Hong Kong entity is the manager of record or a sub-adviser to a UAE entity. That decision drives the licensing analysis in both seats.

Stage three: UAE entity and licensing. We coordinate with allied counsel admitted in the relevant UAE jurisdiction on the entity incorporation and the regulatory application. The choice of ADGM, DIFC or onshore UAE is made at stage one but executed at stage three. The fund documents – the offering memorandum, the limited-partnership agreement or equivalent, the subscription agreement, and the side-letter template – are prepared at this stage. We lead on the international-law and cross-border aspects; UAE-admitted counsel handle the local regulatory filings.

Stage four: AML and compliance infrastructure. Both the Hong Kong and UAE entities require an AML policy, a customer due-diligence framework, a travel-rule compliance procedure for virtual-asset transfers, and an ongoing monitoring programme. We prepare the framework documentation; locally licensed counsel in each seat review and confirm local compliance. This is not a one-time exercise: the AML infrastructure must be maintained and updated as the regulatory regime develops in both jurisdictions.

Stage five: investor onboarding and ongoing compliance. The first investor relationship is the test of the structure. The subscription documents, the KYC process, the source-of-funds analysis, and the investor classification must all work in practice and not just on paper. We review the onboarding sequence and the supporting documentation. For investors in sanctioned or high-risk jurisdictions, the source-of-funds analysis must be documented with particular care in both seats.

If an earlier structure or filing has produced an adverse or stalled result with a regulator in either jurisdiction, a second read can identify the strategic error and the routes still open.

To discuss the route for your specific fund across Hong Kong and the UAE, contact info@lockhartyip.com.

What documents and decisions must the client own?

Three categories of documents and decisions are the client's to own. No adviser can make them; they define the fund's regulatory and commercial position.

The first is the investment mandate. What assets will the fund hold? Are any of them securities under Hong Kong or UAE law? Are any of them fiat-referenced stablecoins, which engage the Hong Kong Monetary Authority's licensing regime for fiat-referenced stablecoin issuers, commenced in 2025 (parties should verify the current commencement date and perimeter before acting)? The mandate determines the licensing track. A fund that changes its mandate after licensing without notifying the relevant regulator is in breach of its licence conditions.

The second is the investor base. Who are the investors, where are they resident, and how are they classified under the applicable investor-protection rules? A fund marketed to professional investors in the UAE and to institutional investors in Hong Kong faces a different regulatory analysis than one marketed to retail participants. The fund documents must reflect the actual investor base, and the onboarding process must enforce the eligibility criteria consistently.

The third is the decision-making chain. Who makes investment decisions? Where are those decisions made? Where does the key-man – if any – sit? Where is the risk-management function? These questions feed directly into the substance analysis that regulators in both seats will conduct. A fund whose investment decisions are demonstrably made in Hong Kong by personnel based in Hong Kong has a Hong Kong management substance argument. A fund whose nominal manager is in Hong Kong but whose decisions are made elsewhere has a problem in both seats.

A micro-scenario illustrates the point. A European family-office principal, with an existing BVI holding structure and a portfolio of digital assets managed informally from a UAE family base, decided in early 2025 to raise a small external fund with Gulf-region co-investors. The initial plan placed the manager in Hong Kong for tax and regulatory reasons but left the investment-decision function with the principal in the UAE. The regulatory mapping exercise identified that the UAE entity – not the Hong Kong entity – was the de facto manager, and that the UAE entity required its own regulatory authorisation. The structure was redrawn to reflect the actual decision-making location before any investor capital was accepted. The result was a structure that could be defended before both regulators.

A second scenario: an Asian technology group with a Mainland China investor base sought to establish a digital-asset fund in Hong Kong to manage treasury positions in virtual assets alongside its operating business. The fund's assets included both crypto-native tokens and a tranche of tokenised trade receivables. The tokenised receivables engaged the SFC's securities framework. The AML obligations – in particular the travel rule for virtual-asset transfers between the fund and its Mainland counterparties – required careful documentation given the sanctions-neutral posture required in cross-border transactions. The structure memo and the AML policy were prepared before any assets were transferred into the fund.

Common mistakes that foreign principals make

The most common mistake is treating the two regulatory regimes as alternatives rather than concurrent obligations. A fund that is licensed in the UAE does not become exempt from Hong Kong licensing obligations by virtue of that UAE licence. If the fund is managed from Hong Kong, if it has Hong Kong investors, or if it operates a platform that serves Hong Kong users, the Hong Kong regulatory perimeter applies regardless of the UAE licence.

The second mistake is timing the licensing application too late. In our cross-border practice, we regularly see structures where the principal has accepted investor capital – sometimes substantial – before the licensing analysis has been completed. An unlicensed activity that has already produced revenue is harder to regularise than one that has not yet begun. Both the SFC and the UAE financial regulators take a dim view of retrospective licensing applications that are filed only after the activity is already in operation.

The third mistake is treating AML as a document exercise rather than an operational one. Both the SFC in Hong Kong and the UAE regulators require that the AML policy be implemented in practice. Customer due diligence must be conducted; source-of-funds files must be maintained; the travel rule must be followed for virtual-asset transfers. A fund that has a well-drafted AML policy but no evidence of its implementation is in the same position as a fund with no AML policy at all.

Foreign principals sometimes assume that the common-law quality of Hong Kong's and the UAE's major financial-centre court systems means that fund documents do not need to be tailored for each seat. This is wrong. The investor-protection rules, the mandatory disclosure requirements, and the governing-law choices available to the fund differ between the two jurisdictions. A single-document approach prepared for one seat will not satisfy both regulators.

Decision matrix: situation, instrument, route, timing, and risk

The following matrix describes the principal structural choices and their consequences.

Situation A: The principal is a manager of a crypto-native fund, based outside Hong Kong and the UAE, seeking to raise capital from Gulf-region investors and deploy it in Asia. The instrument is a UAE-domiciled fund vehicle (ADGM or DIFC) with a Hong Kong sub-adviser or distribution arrangement. The route is UAE fund licensing first, then Hong Kong licensing for the advisory or distribution activity, with AML infrastructure built for both seats simultaneously. Timing depends on the complexity of the UAE licensing application and the SFC review period, which should be treated as running for several months in each seat. The risk is that the sub-advisory or distribution activity in Hong Kong is mischaracterised and triggers a higher licensing obligation than anticipated.

Situation B: The principal is a Hong Kong-based manager seeking to raise a digital-asset fund with a mixed investor base (Asian institutional investors and Gulf-region professional investors). The instrument is a Hong Kong entity as manager, with a Cayman or BVI fund structure sitting above it and a UAE-regulated distribution vehicle for the Gulf-region investors. The route is SFC licensing or exemption analysis first, then UAE distribution vehicle licensing, with the fund documents drafted to satisfy both the SFC's and the relevant UAE regulator's disclosure and investor-classification requirements. The risk is that the UAE distribution vehicle's investor-classification rules are stricter than the equivalent Hong Kong rules, requiring a two-tier subscription process.

Situation C: The fund holds a mix of crypto-native assets and tokenised securities. The instrument is a dual-licensed Hong Kong manager (SFC-licensed for securities management and the relevant virtual-asset position) with a UAE entity for investor relations. The route requires the most complex licensing preparation of the three: the securities and virtual-asset licensing tracks must be addressed in parallel, and the fund documents must reflect the asset-class split. The risk is that the two licensing tracks impose inconsistent requirements on the fund's disclosure, risk management, and custody arrangements.

Self-assessment checklist before engaging

The following questions identify whether the structure is ready for regulatory engagement or whether preliminary work is required first.

• Has the investment mandate been defined precisely enough to identify the applicable licensing category in both seats?
• Has the decision-making chain – who decides, where, and on what basis – been documented?
• Has the investor base been identified by residence, classification and source-of-funds profile?
• Has any investor capital already been accepted? If so, has the licensing position been assessed as of the date the first investment was made?
• Does any asset in the fund's proposed portfolio constitute a security or futures contract under Hong Kong law? Under the applicable UAE regime?
• Does any asset constitute a fiat-referenced stablecoin, engaging the HKMA's stablecoin issuer licensing regime (verify the current perimeter before acting)?
• Is there a draft AML policy? Has it been reviewed against the requirements of both the Anti-Money Laundering and Counter-Terrorist Financing Ordinance and the applicable UAE AML framework?
• Have the governing-law and dispute-resolution clauses in all proposed fund documents been chosen with both seats in mind?
• Has the sanctions exposure of the proposed investor base been assessed against both Hong Kong's UN-sanctions posture and the UAE's own sanctions regime?

If more than two of these questions cannot be answered confidently, the structure is not ready for licensing engagement. It is ready for a regulatory mapping exercise.

Related practices

• Tech & Web3 – licensing, AML and entity structuring for digital-asset businesses across Hong Kong and offshore centres
• Holding Structures – cross-border holding entity design and implementation for funds and operating groups

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