Combining a Type 1 License with a VATP Omnibus Account to Establish an Operational Pathway

Many crypto payment institutions currently operating in Hong Kong are likely confused. They wish to conduct compliant business by applying for a crypto payment license, only to find that no such license is currently available for application. However, proceeding with crypto payment services without a license raises significant compliance concerns. What should be done? Rest assured, we provide a direct conclusion: Before Hong Kong introduces a dedicated "crypto payment/fiat conversion license," if your corporate group holds licensed entities in other jurisdictions authorized to conduct crypto-related business (such as a Money Services Business (MSB) license), there is a new viable solution. The actionable transitional approach is to obtain a Securities and Futures Commission (SFC) Type 1 license and apply for permission to conduct virtual asset (VA)-related activities. You must then connect to a licensed Virtual Asset Trading Platform (VATP) exclusively through one of the two SFC-recognized channels: as an introducing agent or via an omnibus account structure. If you aim to provide an "end-to-end user experience" without directly onboarding retail clients onto partner platforms, choose the omnibus model. This allows you to consolidate end-users on your own front-end interface (e.g., an overseas MSB entity). In this structure, the Hong Kong-based Type 1 licensee serves your MSB entity, placing orders, matching trades, and handling clearing and settlement within the licensed VATP.

 

Why Adopt This Transitional Approach?

  • The regulatory framework is not yet fully implemented; waiting passively is not an option:In June 2025, Hong Kong launched a legislative consultation on "VA Dealing and Custody," explicitly including"conversion/OTC/brokerage" within the scope of future mandatory licensing. However, it remains uncertain when the VA Dealing license will actually be issued.One cannot simply wait indefinitely. Before the formal license is issued, you need to identify apathway that is operational, defensible, and enforcement-friendly.。
  • Infrastructure at the monetary layer is being established: stablecoin issuancehas been codified into law,effective August 1, 2025,with the Hong Kong Monetary Authority (HKMA) opening applications and issuing implementation guidelines. This addresses theissuance side,，not the payment gateway license,but it signals that"crypto payment infrastructure"is beginning to take shape at the monetary layer, making it urgent for crypto payment businesses to secure their market position.

 

Available Compliance Structures During the Transition Period

Entities and Division of Responsibilities

  • Front-end:Your group’s U.S. MSB(or other compliant entity authorized to conduct crypto business) holds relationships with end merchants/individuals, manages Know Your Customer (KYC) procedures, and issues fund instructions;
  • Hong Kong Side: A Type 1 licensee (with upgraded VA conditions) serves your group’s MSB entity and opens an omnibus master account with a licensed VATP (such as HashKey or OSL);
  • Matching and Custody:Executed by VATP the VATP, which handles trade execution and VA custody/deposits and withdrawals;
  • Fiat Leg:Prioritize direct settlement from the VATP to the MSB’s corporate bank account(the Type 1 licensee does not handle client fiat funds).

Hard Boundaries (Based on the SFC/HKMA Joint Circular):

  • Cooperate only with licensed VATPs, and exclusively through two models: introducing agent or omnibus;
  • Provide VA dealing services only to your Type 1 clients;
  • All transactions must be prefunded; no financing may be provided;
  • Retail clients may only trade currencies permitted by the VATP;
  • Client VA deposits and withdrawals must occur only through segregated accounts held by the VATP or an "Authorized Institution (AI)";
  • Anti-Money Laundering (AML) Chapter 12 requirements and the Travel Rule must be implemented in accordance with SFC guidelines, ensuring visibility into downstream clients and on-chain proofs.

 

Four Questions You May Ask

1. Can a Type 1 license be used solely for VA activities, without traditional securities business?

In principle, this is feasible—the current circular does not mandate that a Type 1 licensee must simultaneously conduct traditional securities brokerage before providing VA-related activities. However, for prudence in obtaining the license and maintaining ongoing compliance, it is advisable to retain a "lightweight traditional securities brokerage module" within 6–12 months after license approval. This serves as a "demonstration sample" of competency and system robustness, showing a revenue source corresponding to the foundational licensed activity, while making VA business the primary operation. This approach facilitates regulatory recognition of "capabilities, internal controls, and continuity of Financial Resources Rules (FRR) calculations," thereby reducing uncertainty during subsequent inspections.

2. Is it possible to avoid onboarding end clients directly onto the VATP?

Yes, by using theOmnibus model: The VATP opens only a master account for the Type 1 licensee, while end clients remain under your MSB entity.However, the SFC expects you to have visibility into the MSB’s downstream KYC data, transaction records, and on-chain proofs,to prevent circumvention of retail investor protections.

3. Why not use a Money Service Operator (MSO) or Trust or Company Service Provider (TCSP) license in Hong Kong for crypto payments?

BecauseMSO/TCSP licenses lack regulatory coupling with VA exchange activities;authorities have shifted towards usingdedicated VA Dealing/Custody licensesto regulateexchange/brokerage/OTC/custody activities,rather than incorporating VA activities into traditional MSO/TCSP frameworks.

4. Why not connect the MSB directly to the VATP? Is the intermediate Type 1 license necessary?

If most of your clients are located in Hong Kong and you have offline operational staff in Hong Kong, then yes, it is necessary. A U.S. MSB license does not constitute qualification as an "intermediary in Hong Kong." By bypassing the Type 1 intermediary license pathway, you cannot conduct or actively market VA services to the public in Hong Kong. Directly soliciting clients in Hong Kong under an MSB license poses compliance risks.

 

Key Checklist for Applying for Type 1 License and "Upgrading to VA"

A. Threshold Requirements for the Base License (Type 1)

  • Two Responsible Officers (ROs) to directly supervise the Regulated Activity (RA), at least one of whom must be an Executive Director;
  • Fit and proper status, internal control and risk management systems, and financial strength;
  • FRR Capital (common scenario: Type 1 non-custodial/non-margin financing → paid-up capital of HKD 5 million, liquid capital of HKD 3 million; lower thresholds apply if acting as an approved introducing agent/trader).
  • The above requirements are subject to the SFC’s "Licensing Handbook" and "Financial Resources Rules."

B. Conditions for "Upgrading to VA" Permission (Adding VA Conditions to the License)

  • Cooperation only with licensed VATPs, choosing either the introducing agent or omnibus model;
  • Services provided only to Type 1 clients, with prefunded transactions and no financing;
  • Retail trading limited to currencies opened by the VATP;
  • VA deposits and withdrawals permitted only through segregated accounts of the VATP or Authorized Institutions;
  • Compliance with AML Chapter 12 and the Travel Rule;
  • Notification to the SFC/HKMA and endorsement of license conditions on the license.

 

Key Points for Implementing Compliance Under the Above Transitional Scheme

1. Contract Matrix

  • Type 1 ↔ VATP：Omnibus Master Account Agreement (listing retail-tradable tokens, prefunding requirements, risk control interfaces, reconciliation and allocation mechanisms, and exception handling);
  • Type 1 ↔ MSB：VA-Dealing Omnibus Agreement + look-through provisions + Travel Rule/on-chain message integration;
  • VATP ↔ MSB (Fiat Leg):Direct fiat payment/third-party payment controls; prioritize direct payment to avoid the Type 1 licensee handling client fiat funds.

2. Processes and Systems

  • KYC/Knowledge Assessment/Limits:Standardized for the retail end (downstream of the MSB) through systematic questionnaires and rule engines;
  • Prefunding：Sufficient fiat/VA funds prior to trading;
  • Deposit/Withdrawal Whitelist:VA transfers permitted only to segregated accounts of the VATP or Authorized Institutions;
  • Compliance Ledger:Integrated archiving of on-chain proofs, Travel Rule messages, and reconciliation statements.

3. Disclosure and Boundary Management

  • Clearly state in client agreements, risk disclosures, and website descriptions that the firm does not hold client assets, does not engage in proprietary OTC conversion, does not provide credit, and limits retail trading to VATP-permitted currencies.

 

Outlook: Two-Year "Upgrade Roadmap"

  • Short-term (Immediate): Type 1 License + VA Additional Permission + Omnibus Connection to VATP, creating a "one-stop" front-end experience, but withtripartite compliance responsibility.（MSB/Type 1/VATP）。
  • Medium-term (After Legislation is Implemented):Smooth migration to the new licensing framework of"VA Dealing (Brokerage/Exchange) + Custody."。

 

What We Can Do for You

  • Type 1 License Application Advisory and Documentation Package:Business plan, internal control and risk management manuals, RO competency materials, FRR projections, and WINGS application submissions.
  • "Upgrading to VA" Permission Integration:Implementing the hard requirements of the joint circular into policies, contracts, and systems item by item.
  • Tripartite Contract Suite:Type 1 ↔ VATP Omnibus, Type 1 ↔ MSB, Travel Rule/third-party payment controls, risk disclosure and suitability documents.
  • Review and Regulatory Communication:Issuing policy memos on gray areas such as third-party payments, retail-open currencies, and large block trades, and aligning communication narratives with case officers.

Final Thought: Do not be intimidated by the "regulatory vacuum." The path is already laid out—turn compliance into a product, and the product into a pathway.If you are planning to implement a crypto-to-fiat closed loop in Hong Kong and wish to avoid detours, contact us. We will integrate the aforementioned pathway into your business, producing a two-page implementation roadmap and a contract checklist (Type 1 ↔ VATP ↔ MSB), retaining only necessary complexity and providing executable boundaries and milestones. To get started, simply say: "Do the Type 1 solution." We will begin with your business structure and cash flows, aligning directly to an operational model.