Hong Kong's Readiness to Accept Applications for Spot Crypto ETFs

Hong Kong Prepares for Spot Crypto ETFs

Hong Kong’s financial regulator has announced that it is ready to accept applications for spot crypto exchange-traded funds (ETFs). In a joint circular, the Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority stated that they have reviewed their policies for intermediaries engaged in virtual asset-related activities. The SFC is open to authorizing funds with exposure to virtual assets, including spot VA ETFs. Another circular outlines the requirements for funds to invest directly in spot VA tokens accessible to the Hong Kong public. Unlike mainland China, which has cracked down on cryptocurrencies, Hong Kong has been welcoming to crypto firms.

Hong Kong’s Supportive Stance on Crypto

Hong Kong has been particularly supportive of the cryptocurrency industry this year, even encouraging banks to collaborate with crypto firms. This positive approach makes Hong Kong a potential pioneer in approving a developed financial market’s crypto spot ETF, according to Jason Chan, partner at Howse Williams law firm. In 2022, Hong Kong released policy statements to solidify its position as a global financial center and implemented a licensing regime for virtual asset trading platforms. Julia Leung, CEO of the SFC, expressed interest in spot crypto ETFs as long as they enhance efficiency and customer experience.

Strict Requirements for Spot Crypto ETFs

The SFC has outlined several requirements for spot VA ETFs. Transactions conducted by these ETFs must be carried out through SFC-licensed crypto platforms or authorized financial institutions. Both in-kind and in-cash subscription and redemption are permitted. The trustee or custodian of the fund should delegate its crypto custody function only to an SFC-licensed VATP or those meeting HKMA’s crypto custody standards. The valuation of spot virtual assets should be based on an indexing approach using VA trade volume across major VA trading platforms. Funds intending to have more than 10% crypto exposure must consult with the SFC beforehand.

Hot Take: Hong Kong Leads the Way for Spot Crypto ETFs

Hong Kong’s decision to accept applications for spot crypto ETFs demonstrates its progressive and welcoming stance towards the cryptocurrency industry. While other countries, like China, have implemented stricter regulations, Hong Kong has created an environment that fosters innovation and growth. By allowing spot VA ETFs, Hong Kong opens up new investment opportunities for individuals and institutions interested in virtual assets. This move solidifies Hong Kong’s position as a global financial center and establishes it as a potential leader in the development of crypto financial products. With its supportive regulatory framework, Hong Kong is poised to attract more crypto firms and investors in the future.