Hong Kong SFC and AFRC Enhance VASP Regulatory Oversight with Focus on Financial Reporting and Auditing

Hong Kong’s Securities and Futures Commission (SFC) and the Accounting and Financial Reporting Council (AFRC) have formalized an expanded regulatory oversight for licensed virtual asset service providers (VASPs) through a new Memorandum of Understanding (MoU). Signed on Monday, the agreement specifically incorporates financial reporting, auditing, and compliance cooperation, superseding a 2021 MoU.

This enhanced cooperation establishes mechanisms for information sharing, case referrals, mutual assistance, and joint inspections between the SFC and AFRC. The move is a key component of Hong Kong’s ongoing strategy to broaden its digital asset regulatory framework. This follows earlier developments this year, including new rules for crypto advisory services announced in January and subsequent guidance from the SFC on virtual asset leveraged trading and perpetual contracts.

The prior MoU, executed in 2021 between the SFC and the Financial Reporting Council (renamed AFRC in 2022), did not explicitly include VASPs. The updated accord now extends a more comprehensive regulatory umbrella to SFC-licensed VASPs, licensed companies, registered open-ended fund companies, and authorized funds.

According to SFC announcement, this expanded cooperation aims to bring “more comprehensive regulation” to Hong Kong’s financial industry. This aligns with global trends, as seen in the United Kingdom’s Financial Conduct Authority (FCA) and Singapore’s Monetary Authority of Singapore (MAS), where crypto assets are increasingly integrated into the financial system and subject to audit requirements comparable to traditional financial institutions.

The integration of crypto under the AFRC’s framework can be viewed as an extension of Hong Kong’s “positive list” model, providing clear regulatory pathways for licensed entities. However, this heightened scrutiny is anticipated to increase compliance costs for Hong Kong’s crypto companies, particularly in areas of financial transparency, internal audits, and adherence to new processes.

While stricter auditing standards may benefit compliant firms and potentially bolster institutional investor confidence, the rise in compliance expenses could pose challenges for smaller and medium-sized VASPs. Hong Kong’s regulatory evolution may also offer insights for other jurisdictions, such as Taiwan, as it continues to develop its own crypto regulatory landscape.

The new agreement’s provisions explicitly covering virtual asset service providers are slated to take effect in 2026, building upon the foundational framework established by the initial 2021 MoU.

Why This Matters

The materials describe a narrow update: The SFC and AFRC signed a new Memorandum of Understanding (MoU) that brings licensed virtual asset service providers (VASPs) under the regulatory scope for financial reporting, auditing, and compliance cooperation. The signing of the MoU is part of Hong Kong’s ongoing expansion of its digital asset regulatory framework.

Broader Context

Source materials place the factual news in this context: Hong Kong’s regulatory network for crypto is tightening.