Hong Kong SFC approves spot crypto ETFs, enhancing the city’s status as a global crypto-friendly financial hub.
The Hong Kong financial landscape could evolve with the introduction of spot crypto Exchange-Traded Funds (ETFs). The Securities and Futures Commission (SFC) of Hong Kong, in conjunction with the Hong Kong Monetary Authority (HKMA), has officially opened the gates for these innovative financial instruments. Hence, this move, announced on December 22, marks a significant shift in the region’s approach to virtual assets.
The SFC’s announcement signals a readiness to consider applications for the authorization of Virtual Asset Spot ETFs (VA Spot ETFs). This comes alongside the existing offerings of crypto futures ETFs, expanding the scope of cryptocurrency-related financial products available in the market. Moreover, in a detailed circular released on the same day, the SFC laid out specific criteria that these funds must adhere to. Additionally, all transactions involving these ETFs must occur via SFC-licensed crypto platforms or through other authorized financial institutions.
This decision by Hong Kong’s regulatory bodies is a stark contrast to the stringent stance against crypto activities seen in mainland China. Hong Kong has been making strides towards becoming a more crypto-friendly jurisdiction. Earlier in 2022, Hong Kong issued policy statements aimed at bolstering its position as a leading global financial hub, with a particular focus on cryptocurrencies.
Enhancing Crypto Regulations: The SFC’s Approach
For the effective functioning of these VA Spot ETFs, the SFC has set forth guidelines concerning the custody of cryptocurrencies. Fund trustees or custodians are directed to entrust the crypto custody function only to SFC-licensed Virtual Asset Trading Platforms (VATPs) or entities that meet the HKMA’s crypto custody standards. This ensures enhanced security and compliance in the handling of digital assets.
Furthermore, in terms of valuation, the management companies of these funds should employ an indexing approach. This approach should be based on the trading volume of virtual assets across major trading platforms. Lastly, funds that plan on having crypto exposure exceeding 10% of their net asset value must engage in prior consultations with the SFC.