December 26, 2023
By Sharan Kaur Phillora
Hong Kong’s financial regulators have signaled a significant shift in their approach to cryptocurrencies, opening the door for creating spot crypto exchange-traded funds (ETFs). In a joint statement released on December 22, the Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) announced their readiness to accept applications for such financial products.
Here’s what we know:
This move departs from the previously more cautious stance in 2018 when the SFC introduced a regulatory approach targeting professional investors. The evolution of the virtual asset environment has prompted a reconsideration of policies, leading to the inclusion of Virtual Asset Spot ETFs (VA Spot ETFs) and crypto futures ETFs under the potential investment vehicles authorized by the SFC.
The statement underlines the thorough review of existing policies for intermediaries involved in virtual asset-related activities. The updated guidelines reflect the authorization of VA futures ETFs and the readiness to consider applications for a broader range of funds that involve exposure to virtual assets. This includes the possibility of direct investments in identical spot Virtual Asset (VA) tokens available to the Hong Kong public, provided they are traded on SFC-licensed Virtual Asset Trading Platforms (VATPs).
Furthermore, the SFC has outlined specific criteria for these funds, emphasizing the need for transactions through platforms licensed by the SFC or authorized financial institutions. Secure custody is highlighted, with the mandate that a fund’s trustee or custodian should delegate custody functions only to entities that meet stringent SFC or HKMA standards.
The anticipation for spot crypto ETFs is not limited to Hong Kong. Globally, the financial industry has been closely watching the United States, where firms such as BlackRock, Fidelity, and Grayscale have been vying for the Securities and Exchange Commission’s (SEC) approval for the first spot in Bitcoin ETF. Despite some delays and required application amendments, there is a growing expectation that the SEC will soon approve some of these spot ETF applications.
Hong Kong’s financial landscape is already adapting to these forthcoming changes. HSBC Hong Kong has expanded its support for Bitcoin and Ethereum futures ETFs, and the UBS Group has announced plans to offer crypto-linked ETFs to select clients.
About the author
Sharan Kaur Phillora’s thirst for knowledge has led her to study many different subjects, including NFTs and Blockchain technology – two emerging technologies that will change how we interact with each other in the future. When she isn’t exploring a new idea or concept, she enjoys reading literary masterpieces.
