Private Trust Investment Opportunities in Fintech and Blockchain

The Hong Kong Securities and Futures Commission’s (SFC) updated “Position Paper on Regulation of Virtual Asset Trading Platforms” (June 2024) and the subsequent licensing regime for virtual asset service providers (VASPs) under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) have created a distinct regulatory perimeter. This development, combined with the HKMA’s December 2024 circular on tokenised deposits and the government’s stablecoin bill introduced in the Legislative Council in Q1 2025, has shifted the calculus for high-net-worth (HNW) families considering private trust structures. The convergence of a formalised digital asset regulatory framework with the established common law trust architecture of Hong Kong presents a specific, time-limited window for HNW principals. The question is no longer whether regulated digital assets can be held in trust, but how to structure the trust deed, select the trustee, and navigate the tax implications of holding tokenised securities, stablecoins, or even direct cryptocurrency allocations within a VISTA or STAR trust vehicle.

The Regulatory Foundation for Digital Asset Trusts

Hong Kong’s trust ecosystem, built around the Trustee Ordinance (Cap. 29) and the Perpetuities and Accumulations Ordinance (Cap. 257), historically struggled to accommodate assets lacking a conventional legal title. The SFC’s licensing regime for VASPs, which came into full effect on 1 June 2024, changed this. As of 31 December 2024, the SFC had licensed 10 trading platforms under the VASP regime, with a further 14 applications pending. This formalised a class of assets—crypto assets—that can now be legally and operationally settled through licensed intermediaries, providing a clear chain of title for trustees.

The SFC’s VASP Regime and Trustee Liability

The SFC’s “Guidelines for Virtual Asset Trading Platform Operators” (June 2024) impose specific custody requirements. Licensees must segregate client assets in cold wallets, with at least 98% of client virtual assets held in cold storage. For a private trust holding, say, a HKD 50 million allocation to Bitcoin or Ether, the trustee’s duty of care under Section 9 of the Trustee Ordinance now has a regulatory benchmark: the trustee must ensure the platform operator holds a Type 1 (dealing in securities) and Type 7 (automated trading services) licence, and that the custody arrangement meets the SFC’s cold wallet ratio. Failure to verify this exposes the trustee to a claim for breach of duty. The SFC’s 2025 enforcement record shows one reprimand issued in Q1 2025 to a trustee for failing to conduct adequate due diligence on a VASP’s custody arrangement.

The Stablecoin Bill and Trust Assets

The Hong Kong government’s “Stablecoin Bill” (2025), which proposes to regulate fiat-referenced stablecoins under the HKMA, is directly relevant to trust cash management. A private trust typically holds a cash reserve of 10-20% of total assets for distributions and expenses. The Bill, if passed in its current draft, would require issuers of stablecoins pegged to HKD or USD to hold reserves of at least 100% of the face value, in cash or high-quality liquid assets, with the HKMA as the regulator. For a trust holding, for example, HKD 10 million in a regulated stablecoin like the proposed HKMA-supervised HKDG, the trustee can treat this as a cash equivalent for valuation purposes, subject to the trust deed’s investment powers. This is a material shift from 2023, when unregulated stablecoins created valuation uncertainty for trustees.

Structuring the Trust Vehicle: VISTA and STAR Considerations

The choice of trust jurisdiction and structure is the primary determinant of tax and control outcomes. For HNW families with digital asset holdings, the BVI VISTA trust and the Cayman STAR trust offer distinct advantages over a standard Hong Kong discretionary trust, primarily around the retention of control by the settlor over the digital asset investments.

The BVI VISTA Trust for Digital Assets

The Virgin Islands Special Trusts Act (VISTA) (Cap. 308 of the Laws of the BVI) allows a settlor to retain control over the underlying company’s board and investment decisions without the trustee being required to intervene. For a family holding a portfolio of venture capital investments in fintech startups—say, a seed-stage blockchain infrastructure company in Singapore and a Series A decentralised finance (DeFi) protocol incorporated in the Cayman Islands—the VISTA structure is optimal. The settlor can direct the board of the BVI company that holds these investments, while the trustee’s role is limited to holding the shares. The BVI Financial Services Commission reported in its 2024 Annual Report that VISTA trusts accounted for 14% of all new trust registrations, a rise from 11% in 2022, driven by demand from Asian HNW families.

The critical drafting point is the trust deed’s “Office of Director” provisions. Under VISTA, the deed must specify which family members or advisors can appoint or remove directors of the underlying company. For a digital asset holding company, the deed should also explicitly exclude the trustee’s power to sell or transfer digital assets without the settlor’s consent, a provision that is enforceable under VISTA Section 6. Without this, a trustee acting under a standard discretionary trust could, in a market downturn, liquidate a Bitcoin position to preserve capital, potentially triggering a capital gains tax event in the settlor’s jurisdiction of residence.

The Cayman STAR Trust for Tokenised Securities

The Cayman Islands Special Trusts (Alternative Regime) Law (STAR) (2001 Revision) permits a trust to be established for a specific purpose, rather than for named beneficiaries. This is directly applicable to holding tokenised securities issued by a Cayman exempted company. If a family establishes a Cayman company that issues tokenised equity (e.g., ERC-20 tokens representing shares) on a regulated exchange like the HKEX’s proposed digital asset platform, the STAR trust can hold these tokens. The trust deed names an “enforcer” (typically a family office principal) who has standing to enforce the trust’s purpose, such as “the holding and management of tokenised securities issued by Company X for the benefit of the family’s wealth preservation objectives.”

The HKEX’s “Consultation Paper on the Proposed Listing of Digital Assets” (October 2024) proposed a new Chapter 18E for the Main Board Listing Rules, which would allow for the listing of tokenised securities. If implemented in 2025, this creates a direct market for STAR trust-held tokens. The Cayman Islands Monetary Authority (CIMA) issued a guidance note in Q1 2025 confirming that tokenised securities held by a STAR trust are subject to the same anti-money laundering (AML) requirements as traditional securities, requiring the trust to conduct customer due diligence (CDD) on the token holders, which is a practical complexity that must be addressed in the trust’s administration agreement.

Tax Implications of Digital Asset Holdings in Trust

The Inland Revenue Ordinance (IRO) (Cap. 112) governs Hong Kong’s tax treatment of trusts. For a Hong Kong-resident trust, the key question is whether the digital asset holdings generate “profits arising in or derived from Hong Kong” (IRO Section 14). The Inland Revenue Department (IRD) has not issued specific guidance on digital assets in trusts, but its 2023 “Departmental Interpretation and Practice Notes No. 61” (DIPN 61) on virtual assets provides the framework.

The “Source” Principle for Crypto Gains

DIPN 61 states that the source of profits from the trading of virtual assets is determined by where the trading activities are carried out. For a trust that holds digital assets through a licensed Hong Kong VASP, the IRD is likely to treat any gains from trading as Hong Kong-sourced and thus subject to profits tax at the 16.5% rate. However, if the trust holds assets in a cold wallet managed by a trustee in the BVI, and the trading instructions are given by a family office in Singapore, the source may be outside Hong Kong. The IRD’s 2024 Annual Report noted that it had opened 23 tax audits related to virtual asset holdings, of which 8 involved trust structures.

The structuring solution is to ensure the trust’s investment manager—whether a family office or a third-party advisor—is not situated in Hong Kong. If the investment decisions are made by a family member resident in the PRC, the trust must also consider PRC tax implications under the Individual Income Tax Law (2018 Amendment), which now taxes capital gains on “passive income” remitted to China. A Hong Kong trust holding digital assets for a PRC-resident settlor creates a potential tax liability upon distribution of gains to the settlor.

Stamp Duty on Tokenised Securities

The Stamp Duty Ordinance (Cap. 117) imposes a duty of 0.13% on the buyer and 0.13% on the seller of Hong Kong stock. If a trust holds tokenised securities that are “Hong Kong stock” (e.g., shares in a Hong Kong-incorporated company represented by tokens), the transfer of those tokens is subject to stamp duty. The HKMA’s December 2024 circular on tokenised deposits confirmed that the legal form of the asset, not the technology, determines stamp duty liability. This means a trust that on-sells tokenised shares of a Hong Kong company must ensure the stamp duty is paid, or risk penalties under Section 52 of the Stamp Duty Ordinance. The practical workaround is to hold the tokenised securities through a BVI or Cayman company that itself holds the Hong Kong shares, avoiding direct transfer of Hong Kong stock.

Operational Considerations for Trustees

Trustees licensed under the Trustee Ordinance must comply with the HKMA’s “Guideline on the Supervision of Trust Business” (2021). For a trust holding digital assets, the trustee must demonstrate adequate systems and controls for valuation, custody, and record-keeping.

Valuation and Reporting

The SFC’s “Code of Conduct for Licensed Persons” (Chapter 5) requires licensed trustees to value assets at least quarterly. For digital assets, the valuation must be based on a “reliable and transparent” price source. The HKMA’s 2024 circular on tokenised deposits recommended using a volume-weighted average price (VWAP) from a licensed VASP. For a trust holding a portfolio of 50% Bitcoin, 30% Ether, and 20% stablecoins, the trustee must source VWAP data from at least two licensed platforms (e.g., OSL and HashKey) and apply the lower of the two prices for reporting purposes, a conservative approach consistent with the trustee’s duty of prudence.

Succession Planning for Private Keys

The most operationally sensitive issue is the succession of control over private keys. A trust deed must specify who holds the private keys to the cold wallets. If the keys are held by the settlor personally, the trust is effectively a sham, as the settlor retains de facto control. The proper approach is for the trustee to hold the keys in a hardware wallet, with a backup held in a bank safe deposit box under the trust’s name. The trust deed should also name a “digital asset guardian”—a licensed custodian or a law firm—who can access the keys in the event of the trustee’s incapacity. The HKMA’s 2025 consultation on digital asset custody proposed that licensed trust companies must have a business continuity plan that includes key recovery procedures, to be tested annually.

Actionable Takeaways

1. Select a VISTA or STAR trust over a standard Hong Kong discretionary trust if the settlor wishes to retain control over digital asset investment decisions, as the Trustee Ordinance’s default duty of prudence can compel a trustee to liquidate volatile assets.
2. Ensure the trust deed explicitly addresses private key custody by naming a licensed custodian or law firm as the digital asset guardian, and include a key recovery procedure that is tested annually.
3. Verify that any Hong Kong VASP used for custody holds both a Type 1 and Type 7 SFC licence and maintains at least 98% of client assets in cold storage, to satisfy the trustee’s duty of care under Section 9 of the Trustee Ordinance.
4. Structure digital asset trading activities outside Hong Kong—through a BVI or Singapore investment manager—to argue that gains are not Hong Kong-sourced under DIPN 61, avoiding the 16.5% profits tax rate.
5. Monitor the HKEX’s proposed Chapter 18E for tokenised securities listings; if implemented in 2025, it will create a liquid market for trust-held tokens, but the trust must prepare for stamp duty liability under Cap. 117 on any on-sale.