Key takeaways:
- Spot crypto ETFs are about to be welcomed in Hong Kong as the city’s financial regulator declared on December 22 that it is ready to accept applications for them.
- The SFC underlined that these ETFs’ cryptocurrency transactions must go through approved financial institutions or crypto platforms licensed by the SFC.
Spot crypto ETFs are about to be welcomed in Hong Kong as the city’s financial regulator declared on December 22 that it is ready to accept applications for them.
The de facto central bank of the city, the Hong Kong Monetary Authority, along with the Securities and Futures Commission (SFC), jointly announced today that they had reviewed their existing policies on intermediaries engaged in virtual asset-related activities.
In addition to the current exchange-traded funds (ETFs) for cryptocurrency futures, the SFC indicated that it was prepared to consider applications for the authorization of other funds, such as Virtual Asset Spot exchange-traded funds (VA Spot ETFs).
The SFC specifies the requirements for funds to directly invest in identical spot Virtual Asset (VA) tokens that are made available to the Hong Kong public on SFC-licensed Virtual Asset Trading Platforms (VATPs) in another circular that was released on December 22.
The SFC underlined that these ETFs’ cryptocurrency transactions must go through approved financial institutions or crypto platforms licensed by the SFC. The regulator further stated that for SFC-approved spot Virtual Asset (VA) ETFs, both in-kind and in-cash subscriptions and redemptions are allowed.
Regarding custody, the SFC stipulated that the trustee or custodian of the fund should only assign its crypto custody function to a Virtual Asset Trading Platform (VATP) licensed by the SFC or to entities that satisfy the HKMA’s crypto custody requirements.
The regulator further stated that the fund’s management businesses should use an indexing strategy based on VA trade volume across the leading VA trading platforms for spot virtual asset valuation.
According to the circular, funds that intend to expose more than 10% of their net asset value to cryptocurrency must first engage with the SFC.
Hong Kong has welcomed cryptocurrency companies this year and actively encouraged partnerships with banks, unlike mainland China, which has been cracking down on activity related to cryptocurrencies.
To strengthen its position as a significant international financial center, Hong Kong released policy declarations on cryptocurrencies in October 2022.
The city launched its cryptocurrency trading platform licensing program in June, allowing authorized exchanges to offer retail trading services.
