The Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) issued a joint circular yesterday titled “Joint Circular on Intermediaries’ Activities Related to Virtual Assets,” stating that they have reviewed existing regulatory policies for intermediaries engaged in virtual asset-related activities. After careful consideration, they have decided to accept applications for authorization from “other funds involving virtual assets,” including cryptocurrency spot exchange-traded funds (ETFs), in addition to existing cryptocurrency futures ETFs.
Background:
Hong Kong Web3.0 Summit: ICC Announces Launch of “ICC Camp Accelerator” to Foster Development of Web3 Gaming Ecosystem.
Supplemental information:
Hong Kong announces issuance of digital green bonds: Collaboration with HSBC, UBS, and Bank of China to explore blockchain potential.
The SFC and HKMA jointly released a circular on the 22nd, stating that they have reviewed existing regulatory policies for intermediaries wishing to engage in virtual asset-related activities. After conducting research, they have decided to accept applications for authorization from “other funds involving virtual assets,” including cryptocurrency spot ETFs, in addition to existing cryptocurrency futures ETFs.
Further reading:
SFC greenlights consideration of “Bitcoin Spot ETF” for retail trading if regulatory requirements are met.
Regulatory requirements for spot ETFs:
According to the announcement, the SFC has specified the following requirements for cryptocurrency spot ETFs:
– Virtual asset transactions involved in spot ETFs should be conducted through SFC-licensed virtual asset trading platforms (VATPs) or authorized financial institutions.
– Such ETFs allow subscription and redemption in both physical assets and cash.
– In terms of custody, the custodial service provider of the fund can only entrust its custody to SFC-licensed virtual asset trading platforms or financial institutions that comply with the HKMA’s cryptocurrency custody standards.
– For the valuation of virtual assets, fund management companies should adopt an index-based approach based on the trading volume of virtual assets on major trading platforms.
– Funds holding more than 10% of their net assets in cryptocurrencies need to seek prior consultation with the SFC for management opinions.
Hong Kong actively embraces Web3:
It is understood that in October 2022, the Hong Kong authorities issued a series of policy statements related to cryptocurrencies, actively integrating into the global financial trend. In June of this year, the Hong Kong government officially launched a licensing regime for virtual asset trading platforms, allowing licensed exchanges to provide retail services to individual investors. Following the fraud case involving JPEX in September, the SFC quickly responded and began disclosing relevant lists of virtual asset platform license applications to the public in late September, including licensed platform lists, applied-for license platform lists, and closed platforms.
Further reading:
SFC publishes a list of nine “suspicious cryptocurrency exchanges,” JPEX victim losses rise to HKD 1.61 billion.
In addition, Laura M. Cha, the Chairperson of the SFC, revealed as early as November last year that the regulatory authority was evaluating cryptocurrency spot ETFs. Currently, Hong Kong has already listed several cryptocurrency futures ETFs, such as Samsung Bitcoin Futures Active ETF, CSOP Bitcoin Futures ETF, and CSOP Ether Futures ETF.
Finally, regarding the SFC and HKMA’s open attitude towards spot ETFs, Jason Chan, a partner at Howse Williams LLP in Hong Kong, commented:
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Tags:
ETF
Cryptocurrency
Spot ETF
Regulation
Hong Kong