Hong Kong’s Insurance Authority (IA) has proposed a new set of capital rules that would allow insurers to gain limited exposure to cryptocurrencies while steering capital toward government-backed infrastructure projects. The draft framework, dated December 4, marks the first time the regulator has formally defined how insurance companies can hold crypto assets on their balance sheets, according to documents reviewed by Bloomberg News.
Full backing requirement for crypto holdings
Under the proposed framework, insurers would face a 100% risk charge on any exposure to unbacked crypto assets. This means insurance firms must hold capital equal to the full value of their crypto holdings, a measure that reflects the regulator’s cautious view of market volatility and potential losses. The rule does not prohibit crypto investments but sharply limits exposure by making such positions capital-intensive.
Stablecoins would receive differentiated treatment. Risk charges would depend on the fiat currency backing each token, provided the stablecoins are issued and regulated within Hong Kong’s jurisdiction. This approach clarifies how the IA distinguishes between unbacked tokens and stablecoins backed by identifiable reserves.
In a statement to The Block, a spokesperson for the Insurance Authority said the agency began reviewing its risk-based capital regime earlier this year with the aim of “supporting both the insurance sector and broader economic development.” The spokesperson added that the review “also covers capital treatment proposals having regard to latest regulatory developments such as those for stablecoins and crypto assets.”
Consultation and legislative timeline
The proposal remains subject to revision. The regulator intends to release the draft framework for public consultation between February and April before submitting it for legislative consideration. The consultation will allow industry stakeholders to provide input on the capital rules and on the scope of assets insurers may hold.
A person familiar with the process told Bloomberg News that the proposed changes form part of a broader effort to direct institutional capital into areas aligned with Hong Kong’s policy priorities, such as infrastructure projects.
As of mid-2024, Hong Kong had 158 authorized insurers with HK$635 billion (approximately US$82 billion) in gross premiums. Even small allocations to digital assets or infrastructure under the new framework could represent meaningful inflows into these sectors. However, the 100% risk charge indicates regulators intend to proceed with caution rather than enable large, leveraged exposures.
Incentives for infrastructure investment
The Insurance Authority also plans to encourage insurers to invest in infrastructure projects, particularly those linked to Hong Kong or the Chinese mainland. According to Bloomberg, projects supporting the Northern Metropolis development could receive preferential treatment under the capital framework.
Although the proposal aligns with government development goals, the IA has stated that its review process and decisions are conducted independently. Market participants have expressed concern that too few infrastructure projects currently meet the eligibility standards, though further revisions may occur following consultation.
Broader drive to position Hong Kong as a digital asset hub
The capital framework proposal coincides with Hong Kong’s broader effort to establish itself as a leading center for digital assets. Regulators have introduced licensing regimes for virtual asset trading platforms and are finalizing stablecoin regulations. The new stablecoin licensing system, introduced in August, requires issuers to hold at least HK$25 million in paid-up capital and fully back their tokens with liquid assets. The first licenses under this regime are expected by early 2026.
Hong Kong’s Securities and Futures Commission has also moved to improve market access. Circulars issued in November outlined plans to expand liquidity for licensed exchanges by allowing them to connect with global order books. SFC Chief Executive Julia Leung announced the change during Hong Kong Fintech Week, describing it as a shift toward market models similar to those used in traditional finance.
Crypto activity in the city continues to expand. Licensed exchange HashKey listed shares in December, and tokenization pilots are growing in scale. Together, these measures form part of Hong Kong’s strategy to attract institutional investors while maintaining strong regulatory guardrails.
Industry response and next steps
Some insurers view the proposal as a cautious but necessary step toward integrating digital assets into institutional finance. The capital demands restrict speculative involvement while providing clarity for firms interested in blockchain-related products.
The IA’s public consultation in early 2025 will determine the final shape of the framework. Once complete, the initiative could bring new institutional capital into both Hong Kong’s digital asset markets and critical infrastructure development.
Oleksii Shumak
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