The Hong Kong Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) issued a joint circular yesterday titled “Joint Circular on Activities of Intermediaries in Virtual Asset-Related Business.” The circular states that the SFC and HKMA have reviewed the existing regulatory policies for intermediaries wishing to engage in virtual asset-related activities. After careful consideration, Hong Kong plans to accept applications for authorization of “other funds involving virtual assets,” including cryptocurrency spot exchange-traded funds (ETFs), in addition to the existing cryptocurrency futures ETFs.
According to the announcement, the SFC has set the following requirements for cryptocurrency spot ETFs:
1. Virtual asset trading related to spot ETFs should be conducted through a virtual asset trading platform (VATP) licensed by the SFC or authorized financial institutions.
2. Such ETFs allow subscriptions and redemptions in cash and in-kind.
3. In terms of custody, the custody service provider of the fund can only entrust its custody to a VATP licensed by the SFC or a financial institution that complies with the HKMA’s cryptocurrency custody standards.
4. Fund management companies should adopt an index-based method for valuing virtual assets based on the trading volume of major trading platforms.
5. Funds holding more than 10% of their net assets in cryptocurrencies need to seek the SFC’s management opinion in advance.
Hong Kong Embracing Web3
It is understood that in October 2022, the Hong Kong authorities issued a series of policy statements on cryptocurrencies, actively integrating into the global financial trend. In June of this year, the Hong Kong government officially launched the licensing regime for virtual asset trading platforms, allowing licensed exchanges to provide retail services to retail investors. After the fraud case at JPEX exchange in September, the SFC quickly responded by officially disclosing to the public the relevant list of virtual asset platform license applications, including licensed platforms, platforms that have applied for licenses, and closed platforms.
Furthermore, the Chairman of the SFC, Ashley Alder, had revealed to the public as early as November last year that the regulatory authority was evaluating cryptocurrency spot ETFs. Currently, Hong Kong has listed several cryptocurrency futures ETFs, such as the Samsung Bitcoin Futures Active ETF, CSOP Bitcoin Futures ETF, and CSOP Ether Futures ETF.
Regarding the open attitude of the SFC and HKMA towards spot ETFs, Jason Chan, Partner at Howse Williams Law Firm in Hong Kong, commented:
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Tags:
ETF
Cryptocurrency
Spot ETF
Regulation
Hong Kong