The SFC in Hong Kong has confirmed its openness to review proposals for crypto ETFs operating on the spot exchange.
In an endeavour to address the growing enthusiasm surrounding the launch of spot crypto ETFs, the SFC and HKMA have come together to release a joint circular. Although licensed crypto providers were previously permitted by the SFC to offer cryptocurrency futures ETFs in Hong Kong, comparable permission for spot ETFs had not been granted.
The SFC has updated its stance by announcing that it is open to receiving applications for the approval of alternative funds that involve cryptocurrencies. These encompass spot crypto ETFs as well.
The SFC has announced a revised policy for intermediaries engaged in virtual asset-related activities, following a collaborative effort with two regulators. As a result, the SFC is now actively accepting applications for the authorization of different funds, including the incorporation of Virtual Asset Spot exchange-traded funds (VA spot ETFs), in addition to the existing cryptocurrency futures ETFs.
Hong Kong’s regulatory strategy has transformed, moving away from the exclusive focus on the professional-investors-only framework implemented in 2018. In a move to enhance investor engagement, the SFC revised its regulations in October, expanding the scope for individuals to participate in spot cryptocurrency and ETF investments.
On December 22, the SFC released a circular detailing the requirements for funds to invest in spot Virtual Asset (VA) tokens that are accessible to the general public of Hong Kong through SFC-licensed Virtual Asset Trading Platforms (VATPs). The SFC made it clear that any cryptocurrency transactions carried out by these ETFs should be executed via either SFC-licensed crypto platforms or authorized financial institutions.
Management companies must adhere to the latest SFC regulations, which grant them the option to carry out subscription and redemption procedures using either in-kind or in-cash methods. These companies must transfer their cryptocurrencies to custody accounts held by SFC-authorized providers, regardless of whether these accounts are located domestically or internationally.
Management companies are encouraged to utilize an indexing strategy when gauging the value of spot ETFs. This involves relying on trade volume information obtained from prominent cryptocurrency trading platforms. Additionally, it is important to note that any funds aiming to exceed a cryptocurrency exposure of 10% of their net asset value must first consult with the SFC for guidance.
The SFC announces its readiness to receive applications seeking approval for financial resources involving virtual assets, such as virtual asset spot exchange-traded funds (VA spot ETFs).
Hong Kong Rises Like a Phoenix: Global Regulatory Shift Pushes Region to Account for Over 11 % of Global VC Funding in the Sector
Mainland China has been all too eager to clamp down on cryptocurrency activity, but the Hong Kong approach has been vastly different. Unlike its counterpart, Hong Kong displays a welcoming attitude towards crypto companies, actively fostering partnerships with banks all year round.
The rise in Hong Kong and Singapore’s prominence in the blockchain and crypto sectors is evident, as they now receive more than 11% of global venture capital invested in these industries. This is a substantial increase from the mere 2% that was allocated in 2021.
US-based cryptocurrency firms have reassessed their strategies due to multiple factors, one of which is the difficulties encountered by the FTX crypto exchange. This has led to a change in funding allocation.
Hong Kong, to solidify itself as a prominent global financial centre, took a significant step forward in October 2022 by releasing policy statements about cryptocurrencies. Furthermore, the city made strides in June with the launch of its innovative crypto licensing system exclusively designed for virtual asset trading platforms. Under this system, licensed exchanges are now permitted to extend their services to include retail trading options.
This announcement meshes perfectly with rumours of the possible approval of a spot bitcoin ETF by the U.S. Securities and Exchange Commission (SEC) early next year.
Frequently Asked Questions:
Can you provide an update on the latest progress in Hong Kong regarding spot crypto ETFs?
Hong Kong’s Securities and Futures Commission (SFC) has expressed its preparedness to evaluate proposals for exchange-traded funds (ETFs) focused on cryptocurrencies, with a specific inclination towards spot trading.
Did Hong Kong allow spot crypto ETFs before?
Contrary to prior conditions, spot ETFs lacked the same authorization as cryptocurrency futures ETFs for licensed crypto providers, until the recent pronouncement made by the SFC.
What were the underlying factors that triggered the alteration of the regulatory approach regarding spot cryptocurrency ETFs in Hong Kong?
In response to the increasing demand for spot crypto ETFs, the SFC and the HKMA have jointly released a revised circular that denotes a notable departure from their previous regulatory approach.
What specific guidelines govern the approval process for cryptocurrency exchange-traded funds (ETFs) in Hong Kong?
The SFC has mandated that funds are strictly required to invest in the same Virtual Asset (VA) tokens that are accessible to the general public in Hong Kong through SFC-approved Virtual Asset Trading Platforms (VATPs). For these ETFs to conduct any cryptocurrency transactions, they must do so exclusively via licensed crypto platforms or authorized financial institutions.
In what manner does the SFC intend to ascertain the value of spot ETFs?
The SFC recommends management firms embrace an indexing strategy, placing trust in trade volume data obtained from significant cryptocurrency trading platforms. Funds that intend to have cryptocurrency involvement surpassing 10% of their net asset value are required to engage in preliminary discussions with the SFC.
What alterations have been discerned in the regulatory approach towards cryptocurrency investments in Hong Kong?
In a departure from its previous approach, Hong Kong has decided to break away from the professional-investors-only framework introduced in 2018. To encourage wider involvement in spot crypto and ETF investing, the SFC made significant changes to its regulations in October.
What is the current standing of Hong Kong in the global cryptocurrency industry, considering recent changes in regulations?
While mainland China takes a stringent stance on cryptocurrency activities, Hong Kong has taken a remarkably different approach by embracing collaboration with crypto companies. This strategic decision has transformed Hong Kong into a prominent centre, attracting a considerable share of global venture capital funding, estimated at more than 11%, specifically targeted at businesses in the area.
How has Hong Kong endeavoured to bolster its standing in the cryptocurrency realm?
In a bid to reinforce its position as a worldwide financial centre, Hong Kong unveiled its cryptocurrency policy statements in October 2022, alongside the implementation of a revolutionary licensing system for virtual asset trading platforms in June. These initiatives are set to bolster Hong Kong’s stature in the global financial arena.
Are there any discussions regarding potential regulatory advancements in the United States regarding spot bitcoin exchange-traded funds (ETFs)?
There have been rumours suggesting that the SEC might greenlight a bitcoin ETF in the first few weeks of the coming year, coinciding with an announcement made in Hong Kong.