Hong Kong is positioning itself as a welcoming hub for cryptocurrency exchange-traded funds (ETFs), particularly spot crypto ETFs. On December 22, the city’s financial regulator, the Securities and Futures Commission (SFC), along with the Hong Kong Monetary Authority (HKMA), the city’s de facto central bank, announced their readiness to accept applications for these products.
This announcement marks a significant step in Hong Kong’s approach to virtual assets. The SFC and HKMA have reviewed their policies regarding intermediaries engaged in virtual asset-related activities. The SFC is now prepared to authorize a variety of funds, including Virtual Asset Spot exchange-traded funds (VA Spot ETFs), in addition to the existing crypto futures ETFs.
On the same day, the SFC released a circular detailing the criteria for funds that intend to “directly invest in identical spot Virtual Asset (VA) tokens available to the Hong Kong public on SFC-licensed Virtual Asset Trading Platforms (VATPs).” The SFC mandates that cryptocurrency transactions by these ETFs must be conducted through SFC-licensed crypto platforms or authorized financial institutions. Furthermore, the regulator allows both in-kind and in-cash subscriptions and redemptions for these SFC-authorized spot VA ETFs.
For the custody of these assets, the SFC requires that the fund’s trustee or custodian should delegate the crypto custody function only to an SFC-licensed VATP or entities that meet the crypto custody standards set by the HKMA. When it comes to the valuation of spot virtual assets, the SFC advises fund management companies to use an indexing approach based on VA trade volume across major VA trading platforms. Additionally, funds that plan to have crypto exposure exceeding 10% of their net asset value are required to consult with the SFC beforehand.
Hong Kong’s approach contrasts sharply with the more restrictive stance on cryptocurrency activities in mainland China. Throughout the year, Hong Kong has shown openness to crypto firms and has encouraged collaboration between these firms and banks.
In October 2022, Hong Kong issued policy statements on cryptocurrencies, aiming to bolster its position as a global financial center. Earlier, in June, the city launched its crypto licensing system for virtual asset trading platforms, allowing licensed exchanges to offer retail trading services. This move further underscores Hong Kong’s commitment to integrating virtual assets into its financial landscape.
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