Hong Kong Regulator Tightens Custody Standards for Licensed Crypto Exchanges

Hong Kong’s Securities and Futures Commission (SFC) is stepping up its oversight of crypto exchanges, introducing new custody rules to strengthen asset protection and reinforce its ambition to become Asia’s digital asset hub.

• New custody rules: Licensed exchanges must meet standards for cold wallet operations, management accountability, and real-time threat monitoring.
• Regulatory review impact: The move follows findings of cybersecurity weaknesses at some exchanges earlier this year.
• Strategic positioning: Hong Kong aims to distinguish itself from Singapore by pairing wider product access with strict client asset safeguards.
• Part of ASPIRe strategy: Custody reforms fall under Hong Kong’s broader five-pronged regulatory framework.

The Securities and Futures Commission (SFC) of Hong Kong has introduced stricter custody requirements for licensed virtual asset trading platforms (VATPs), underscoring its commitment to investor protection and long-term market credibility.

In a circular issued Friday, the SFC outlined minimum standards covering several areas: senior management responsibility for custody oversight, cold wallet operations, third-party wallet usage, and the implementation of real-time cyber threat monitoring.

These new requirements come after the regulator conducted a targeted review earlier this year, which revealed inadequacies in the cybersecurity and custody practices of some existing exchanges. The SFC stressed that these standards will also serve as a reference point for virtual asset custodians more broadly.

By combining product expansion with strict asset protection frameworks, Hong Kong is seeking to carve out a competitive edge over regional rival Singapore. While Singapore has tightened access to retail crypto services, Hong Kong is taking a more balanced approach, allowing broader participation but under tighter supervision.

The custody standards are closely tied to the SFC’s ASPIRe strategy, a five-pronged plan introduced earlier this year at Consensus 2025. The strategy aims to address key industry challenges such as liquidity fragmentation, regulatory arbitrage, and market volatility, while broadening the scope of regulated crypto products and services.

These custody reforms are the latest in a series of regulatory steps Hong Kong has taken in 2025. Earlier this year, the SFC rolled out new licensing regimes for OTC trading and custody services, reviewed derivatives and margin trading for virtual assets, and approved staking services under strict compliance conditions.

Final Thought

Hong Kong’s tightening of custody standards signals a clear message: the city is serious about building a secure and competitive digital asset ecosystem. By addressing weaknesses while expanding regulated offerings, the SFC is positioning Hong Kong as a leading hub for institutional and retail crypto adoption in Asia