Hong Kong is positioning itself as a favorable destination for cryptocurrency exchange-traded funds (ETFs), with its financial regulator, the Securities and Futures Commission (SFC), announcing on Dec. 22 its readiness to consider applications for spot crypto ETFs.
The SFC, together with the Hong Kong Monetary Authority (HKMA), the city’s primary banking regulator, has revised its guidelines for entities engaged in digital asset activities. This move marks a significant step in expanding the city’s virtual asset market offerings.
Specifically, the SFC is set to accept proposals for Virtual Asset Spot exchange-traded funds (VA Spot ETFs). This development adds to the existing options of crypto futures ETFs, broadening the spectrum of crypto-related investment products in Hong Kong.
The regulatory body issued detailed criteria on Dec. 22, outlining the requirements for funds intending to invest in spot Virtual Assets (VAs). These funds are required to operate through platforms licensed by the SFC or through financial institutions authorized by the regulator. The SFC’s guidance allows for both in-kind and cash transactions for these VA Spot ETFs.
A key aspect of the new regulations pertains to the custody of digital assets. The SFC mandates that the custody of crypto assets should be managed either by an SFC-licensed Virtual Asset Trading Platform (VATP) or a custodian that adheres to the HKMA’s crypto custody standards.
The SFC also provided guidelines on the valuation of spot virtual assets. Fund managers are advised to use an indexing approach that considers the trading volume of virtual assets across major trading platforms. Additionally, funds with more than 10% of their net asset value in cryptocurrencies are required to consult with the SFC prior to proceeding.
Hong Kong’s approach to cryptocurrencies contrasts sharply with the more stringent regulations in mainland China. The city has been actively courting crypto businesses throughout the year, fostering partnerships between crypto firms and traditional banks.
In a strategic move to bolster its position as a global financial center, Hong Kong released policy statements on cryptocurrencies in October 2022. Earlier in June, the city launched a licensing system for virtual asset trading platforms, allowing licensed exchanges to offer retail trading services, further cementing its pro-crypto stance.