Hong Kong Tightens Crypto Custody Rules After Series of Global Incidents

The Hong Kong Securities and Futures Commission (SFC) has announced a significant tightening of rules for the custody of digital assets, which now immediately applies to all licensed Virtual Asset Trading Platforms (VATPs). These new measures aim to protect client funds and lay the groundwork for the upcoming licensing regime for independent crypto custodians. According to the SFC, the past year has seen a sharp increase in “multiple cyber incidents” affecting overseas centralized exchanges, leading to “substantial client losses.” The main causes were wallet system vulnerabilities and weak security controls.

New obligations for crypto platforms Licensed platforms will now be required to implement:

🔹 Robust infrastructure and the operation of cold wallets

🔹 Oversight of third-party wallet providers

🔹 Strict controls over private keys and login credentials

🔹 Hardware protected against unauthorized access

🔹 Systematic transaction verification and use of “white” addresses

🔹 Independent third-party audits and assessments

🔹 Staff training to prevent “blind signing” The SFC is also preparing a separate proposal requiring any entity that holds clients’ virtual assets or provides tools enabling their transfer to obtain a special license.

Immediate enforcement and upcoming legislation The new rules are effective immediately, and operators must also ensure continuous security monitoring. The SFC plans to incorporate this framework into the upcoming licensing regime for crypto custodians. In the coming months, the commission will introduce a draft bill with transitional provisions, an accelerated approval process for already vetted entities, and higher application and annual fees under a user-pay model. Public comments on the proposal are open until August 29, 2025. This initiative follows the February regulatory plan aimed at strengthening Hong Kong’s virtual asset ecosystem and comes just weeks after the launch of stablecoin licensing in early August.

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