A fund manager preparing to launch a tokenised strategy in Hong Kong faces a specific legal question the moment the structure takes shape: which vehicle, which licence, and which cross-border tax and banking stack will allow the fund to open to the investors it actually wants. Getting that answer wrong – choosing the wrong domicile, the wrong instrument or the wrong distribution wrapper – locks in tax leakage, limits the eligible investor base, and can trigger regulatory obligations the manager did not anticipate. The analysis that follows sets out how the regime works, what the process demands, and where the decisions are made.
Tokenised fund structuring in Hong Kong sits at the intersection of the Securities and Futures Commission (SFC) licensing regime, the existing fund domicile options available in the city – and, increasingly, the SFC's published guidance on tokenised investment products. The SFC has signalled, in successive circulars, that tokenisation does not change the underlying regulatory characterisation of a fund interest: a tokenised unit in a collective investment scheme is still a collective investment scheme interest, and the full suite of SFC obligations follows. The page below maps every structural and regulatory decision a fund manager must work through before launch.
How the SFC regime treats tokenised fund interests
Under the SFC's regime, a tokenised fund interest is regulated on the basis of its economic substance, not its technical form. The SFC has confirmed, through its 2023 and subsequent circulars on tokenisation, that distributing or managing a fund whose interests are represented by tokens on a distributed ledger does not create a separate regulatory category. The fund remains a collective investment scheme; the manager requires the applicable Type 9 (asset management) licence; and distribution in or from Hong Kong to the public triggers the relevant authorisation or exemption analysis.
This matters immediately for structuring. A manager considering a token-wrapper for an existing fund strategy cannot rely on the technical novelty of the instrument to sidestep SFC oversight. In our practice, we have seen managers proceed on the assumption that a private placement to professional investors obviates the need to engage with the SFC's tokenisation guidance. That assumption is only partly correct. The professional investor carve-out limits certain distribution obligations; it does not remove the manager's obligation to hold the right licence or to ensure the custodial and operational model meets SFC expectations for tokenised products.
The SFC's position on tokenised products also imposes requirements on the platform layer. Where tokens are held on a trading venue, the venue itself is subject to the VASP (virtual asset trading platform) licensing regime – the regime under which the SFC licenses virtual asset trading platforms, or VATPs, for retail-accessible and professional-investor products alike. A fund whose token interests are to be traded or held on a licensed VATP must satisfy the operational standards the SFC has set for that platform, including custody, valuation and disclosure obligations. Structuring the fund in isolation from the platform question produces gaps the regulator will identify.
What vehicle options does Hong Kong offer for a tokenised fund?
Hong Kong offers two principal domestic vehicle types for a tokenised fund structure: the Limited Partnership Fund (LPF), introduced in 2020, and the Open-ended Fund Company (OFC), introduced in 2018. Each is a recognised structure for private funds and is capable of holding digital assets, subject to the manager's licence and the applicable investment restrictions.
The LPF is the primary choice for closed-end, private-equity-style digital-asset strategies. It is a Hong Kong-registered partnership with a general partner and one or more limited partners. It does not require SFC authorisation of the fund itself – only the manager's licence applies – and there is no mandatory re-domiciliation requirement for an existing offshore fund converting to an LPF. In our practice, managers with an existing Cayman or BVI structure targeting Hong Kong and regional investors regularly use the LPF as a parallel fund or successor vehicle to consolidate the investor base under a regulated Hong Kong wrapper.
The OFC suits open-end strategies and offers pass-through tax treatment for gains on the disposal of securities, including, under current HKIRD practice, digital assets that are held as investments. The OFC requires a designated SFC-licensed manager and a SFC-licensed custodian. That custodian requirement becomes the critical structural constraint for a tokenised OFC: the custodian must be able to hold digital assets in compliance with SFC standards, which, for tokenised interests, means satisfying the SFC's technology and security expectations for private key management. Not every SFC-licensed custodian has built out that capability.
For managers who conclude that neither the LPF nor the OFC provides the right profile – often because the investor base is outside Hong Kong and the regulatory centre of gravity belongs elsewhere – the question shifts to whether Hong Kong should be used as the management hub with a non-Hong Kong vehicle, or whether an offshore feeder into a master fund is the cleaner answer. That is a cross-border decision, addressed below.
For a scoped assessment of your vehicle and licensing options, contact OBOLUS at info@oboluslaw.com. The process above describes the standard path. Your facts – the investor base, the asset mix, the target platform – change the analysis materially.
Does a tokenised fund manager in Hong Kong need a licence?
Yes: managing a tokenised fund in or from Hong Kong requires a Type 9 (asset management) licence from the SFC, unless a specific exemption applies. No exemption is available to a manager who is managing a collective investment scheme and is doing so habitually as a business activity. A manager operating under a family office or proprietary trading arrangement may fall outside the definition, but that analysis turns on specific facts and should not be assumed.
The Type 9 licence application requires the manager to demonstrate fitness and properness of its responsible officers, adequate internal controls, a compliant AML/KYC programme, and – for a digital-asset strategy – the operational competence to manage the specific risks of the asset class. The SFC has published guidance on the additional standards it expects from managers running virtual-asset portfolios, including policies on valuation methodology, liquidity risk management and cybersecurity. Those standards are not optional additions to a Type 9 application; they are conditions the SFC will scrutinise at the licensing stage.
In our cross-border practice, managers who have previously obtained a licence in Singapore under the Monetary Authority of Singapore (MAS) Payment Services Act or in Switzerland under FINMA often assume their existing supervised status will shorten the Hong Kong process. The SFC conducts its own assessment. A well-prepared application from a previously licensed manager can move more quickly through the process because the compliance infrastructure already exists, but the SFC will not treat foreign regulatory status as a substitute for its own review. Timeline, qualitatively, is typically measured in several months for a well-prepared application; a deficient application or a novel strategy can extend that materially.
How does cross-border tax and banking interact with Hong Kong tokenised fund structuring?
The cross-border dimension is where most tokenised fund structures succeed or fail before a single investor subscribes. Hong Kong imposes no capital gains tax and applies a territorial profits tax, which generally does not apply to investment returns from securities held offshore. That tax profile is a genuine structural advantage. But the manager must ensure the fund's investment management activities – the decisions that generate gains – are treated as taking place in Hong Kong, not in a jurisdiction that would recharacterise those activities as a foreign permanent establishment or a taxable presence elsewhere.
For a tokenised fund with global investors, the relevant tax analysis spans at least three layers: the fund vehicle's own tax position in Hong Kong; the withholding tax implications for returns flowing to investors in their home jurisdictions; and the substance requirements that Hong Kong (and increasingly other jurisdictions under BEPS-driven reporting frameworks) imposes on entities claiming the territorial exemption. A Hong Kong-managed fund with a Cayman master, for example, must demonstrate genuine management substance in Hong Kong to maintain the intended tax treatment. In our practice, we have seen structures where the substance analysis was not completed at launch and where the tax leakage materialised only when investors sought confirmation of the fund's residence status for their own reporting purposes.
Banking is the second constraint. Hong Kong's licensed banks have become more selective about digital-asset fund clients. The practical standard they apply is similar to what operators encounter in Singapore and Switzerland: a credible regulatory status (a Type 9 licence or an application in progress), a documented AML/KYC programme, clear custody arrangements, and a fund that can explain its investor base and its on-chain and off-chain flows. A fund that relies on a single banking relationship in one jurisdiction and cannot demonstrate a viable contingency banking arrangement is operationally fragile. We regularly advise on the multi-bank strategy for tokenised funds at the structuring stage, not as an afterthought after launch.
If your fund structure has stalled at the banking or custody stage, contact OBOLUS at info@oboluslaw.com. A second read can surface the structural reason and the route forward.
What is the process for an inbound operator structuring a tokenised fund in Hong Kong?
For an inbound manager – one established outside Hong Kong and seeking to use the city as a fund management or domicile hub – the process runs in three broad phases. The first is a pre-application analysis that maps the regulatory, tax and banking requirements specific to the fund's strategy, investor profile and token architecture. This phase determines whether a Type 9 licence is required directly or whether the manager's existing offshore structure can be used with a Hong Kong sub-advisory arrangement. It also determines which vehicle – LPF, OFC or an offshore fund managed from Hong Kong – best serves the investor base.
The second phase is application preparation. For a Type 9 licence application to the SFC, this means drafting the policies, procedures and compliance manuals the SFC will review; preparing the responsible officer submissions; and structuring the AML/KYC and risk management documentation to reflect the digital-asset-specific standards the SFC has published. The fund constitutive documents – whether a limited partnership agreement for an LPF or the sub-fund documents for an OFC – are drafted and reviewed against the SFC's requirements for tokenised structures in parallel.
The third phase covers the SFC review and approval process, including responding to any requisitions the SFC raises. During this phase, the custody and platform arrangements are finalised: the manager confirms which SFC-licensed custodian will hold the tokenised interests and, where applicable, which VATP will provide the secondary-market infrastructure. The operational testing of the token issuance and transfer mechanics – ensuring that the smart contract governing the tokenised interests does not conflict with the fund documents – is completed before the first close.
A well-prepared inbound application, where the manager has existing regulated status in a comparable jurisdiction and the fund strategy is clearly articulated, can move through each phase in a sequence measured in months. Applications that begin without a completed pre-application analysis tend to take longer; the SFC's requisitions often return to the same factual gaps that would have been identified and resolved earlier.
Which structure works for which fund profile?
The decision between vehicle types and management arrangements turns on three factors: the investor base, the asset mix, and the liquidity terms. A manager running a closed-end digital-asset venture strategy primarily for institutional and professional investors based in Asia fits the LPF model well. The LPF provides a clean, Hong Kong-regulated wrapper; its Type 9 requirements are well-understood; and the closed-end structure avoids the redemption-pressure dynamics that make tokenised open-end funds operationally demanding. Timeline to operational status is materially a function of SFC licensing, not of vehicle registration.
A manager running a liquid digital-asset strategy – a token basket, a market-neutral crypto strategy, or a fund whose interests are intended to be freely transferable – presents a different profile. The OFC may be appropriate, but the custody and valuation requirements for a liquid tokenised fund are more demanding. The SFC will scrutinise the net asset value calculation mechanism for token positions, the frequency and methodology of valuation, and the redemption terms in light of the fund's actual liquidity. For this profile, the pre-application work on custodial and NAV methodology is at least as important as the licence application itself.
A manager whose primary investor base sits outside Hong Kong – European institutional investors, US qualified purchasers or Middle Eastern sovereign vehicles – may find that the fund domicile decision belongs elsewhere and that Hong Kong serves best as the management location. A Cayman Islands fund managed from Hong Kong under a Type 9 licence is a well-worn structure that preserves the Cayman domicile's familiarity to international investors while using Hong Kong's regulated management hub status to satisfy those investors' due diligence requirements. Allied counsel in the relevant jurisdiction advise on the Cayman side; we advise on the Hong Kong management structure and the interface between the two.
A structuring matter: tokenised fund, inbound manager
In a recent matter, an Asia-Pacific asset manager sought to launch a tokenised private credit fund targeting professional investors in Hong Kong and Singapore. The initial structure was an offshore vehicle with a proposed Hong Kong sub-advisory arrangement – a design that would have left the manager's responsible officers outside the SFC's licensing perimeter. We advised on restructuring the arrangement so that the Hong Kong entity held the primary Type 9 licence, with the offshore vehicle as the fund domicile and the Hong Kong entity as the sole investment manager. The AML/KYC and custody documentation was rewritten to address the SFC's digital-asset standards directly. The fund closed to initial investors in the same calendar year the restructuring was completed.
What are the most common structuring mistakes for tokenised funds in Hong Kong?
A common assumption among managers entering the Hong Kong market is that any offshore vehicle works equally as the domicile for a digital-asset fund, provided the manager has a Hong Kong licence. In practice, that assumption underestimates the extent to which the fund's domicile affects investor eligibility, tax treatment and the custodian's operational requirements. A Cayman vehicle is well understood by institutional investors globally; a newer or less-familiar offshore domicile may create friction at the investor due diligence stage, even if it is technically legally valid.
A second common mistake is treating the token architecture as a documentation afterthought. The smart contract governing the tokenised interests is a legal document. It defines transfer restrictions, redemption mechanics and the relationship between the on-chain token and the off-chain fund interest. Where the smart contract terms conflict with the fund documents, the conflict is discovered either by the SFC during its review or – more expensively – by an investor at redemption. In our practice, we review the smart contract in parallel with the fund constitutive documents, not after them.
A third mistake is underestimating the substance requirements that flow from a Hong Kong management arrangement. The territorial profits tax exemption is valuable. It is also conditional on genuine management activity taking place in Hong Kong. A manager who appoints Hong Kong responsible officers on paper but makes investment decisions from another jurisdiction will not satisfy either the SFC's control requirements or the tax substance test. Both analyses point to the same requirement: real management activity, real people and real infrastructure in Hong Kong.
Related at OBOLUS
- Digital-asset funds and investment vehicles – structuring, licensing and cross-border fund counsel for crypto-native managers
- Redemption and liquidity terms in Switzerland – open-end fund liquidity structuring under FINMA oversight
- VASP licensing in France (AMF/PSAN) – EU market entry and MiCA transition for asset managers and VASPs
FAQ
Where should a crypto fund be domiciled?
Domicile depends on the investor base, the asset mix, the tax profile and the regulatory requirements of the management hub. Hong Kong's LPF and OFC structures suit managers whose investors are based in Asia-Pacific and who are operating under an SFC Type 9 licence. Cayman and BVI remain common domiciles for internationally distributed funds managed from Hong Kong. The wrong domicile creates tax leakage and limits eligible investors; the analysis should be completed before the fund documents are drafted.
Does a digital-asset fund manager need a licence?
In Hong Kong, a manager managing a collective investment scheme – including a tokenised fund – requires a Type 9 (asset management) licence from the SFC. Exemptions for family office and proprietary trading arrangements exist but are fact-specific. Managing virtual-asset portfolios attracts additional SFC guidance on valuation, liquidity and cybersecurity standards that must be addressed in the licence application. Operating without the required licence exposes the manager and its officers to regulatory and criminal liability under the applicable SFC provisions.
How is custody arranged for a crypto fund?
A tokenised fund in Hong Kong requires a SFC-licensed custodian capable of holding digital assets in compliance with the SFC's technology and key-management standards. Not all SFC-licensed custodians have built out that infrastructure. For an OFC, the custodian appointment is a structural requirement. For an LPF, custody terms are negotiated in the fund documents. In each case, the custody arrangement must address both the off-chain legal title question and the on-chain private key management model, and both must be consistent with the fund constitutive documents.
OBOLUS is an independent digital-asset law boutique acting only for businesses. We advise exchanges, custodians, token issuers and funds on licensing across 70+ jurisdictions, on disputes and on-chain asset recovery across 25+ forums, and on the tax, banking and compliance that sit around them. Digital assets are the whole of our practice. We match fund domicile to investor base, asset mix and redemption profile – the variables that determine whether a structure delivers its intended tax and regulatory outcome. To discuss your fund structure, contact info@oboluslaw.com.
By Lydia Brennan, Tax & Structuring Analyst – cross-border tax structuring and domicile analysis for tokenised funds and digital-asset investment vehicles in the Asia-Pacific region and beyond.
This publication is general information about the law and does not constitute legal advice. It is not a substitute for advice tailored to your circumstances. OBOLUS accepts no liability for action taken or not taken on the basis of this material. For advice on your situation, contact info@oboluslaw.com.