Hong Kong Ready To Accept Proposals For Crypto Spot ETFs

While considering the custody arrangements, the Securities and Futures Commission (SFC) insists that the fund’s trustee or custodian can delegate its crypto custody function solely to an SFC-licensed VATP or entities that meet crypto custody standards set forth by the HKMA.

Hong Kong has stated that it is ready to receive applications from traditional financial firms interested in exploring the emerging economy by developing exchange-traded funds (ETFs) that track spot-based cryptos.

The nation already permits futures-based crypto ETFs and has approved listing ETFs like the Samsung Bitcoin Futures Active, CSOP Ether Futures, and CSOP Bitcoin Futures. The crypto-friendly country is now ready to open its borders to welcome spot ETFs for retail investors.

Hong Kong Is Ready For Crypto Spot ETFs

The nation’s financial regulators, the Hong Kong Monetary Authority (HKMA) and the Securities and Futures Commission (SFC) shared this news in a joint circular published on December 22.

Based on the financial regulators, the Asian nation has managed to review its “professional investors only” regulation, established in 2018 to accommodate different investment options for retail investors, including digital assets.

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The joint statement reads:

“The policy has been updated in light of the latest market developments, where the SFC has authorized VA futures ETFs and is prepared to accept applications for the authorization of other funds with exposure to virtual assets, including virtual asset spot exchange-traded funds (VA spot ETFs).”

The watchdogs said they got increased requests from intermediaries about the possible distribution of investment products with exposure to virtual assets.

Nevertheless, with the recent update, these firms can now submit applications for offering spot Ethereum (ETH), Bitcoin (BTC), or other digital asset funds for retail investors.

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Hong Kong Imposes Strict Guidelines For Crypto Spot ETFs

In another circular, the SFC has highlighted the criteria for approving cryptocurrency spot ETFs, detailing the needs that financial regulators would consider.

Based on the statement, firms need to guarantee that the funds comply with all the relevant regulations in the Overarching Principles Section and the Code to provide such investment products to clients. These rules and regulations are stipulated in the Unit Trusts and Mutual Funds (UT Code) within the SFC Handbook, featuring Mutual Funds, Unit Trusts, Unlisted Structured Investment Products, and Investment-Linked Assurance Schemes.

Additionally, SFC-authorized VA Funds management firms have to demonstrate a strong track record of regulatory compliance before floating crypto spot ETFs.

They need one or more competent staff members with the necessary experience in managing virtual assets and related products. These firms will be subject to extra terms and conditions imposed by the Licensing Department when applicable.

This circular specified that crypto transactions executed by these ETFs need to take place on SFC-licensed cryptocurrency platforms or authorized financial institutions.

Considering the custody arrangements, the SFC insists that the fund’s trustee or custodian can delegate its crypto custody function solely to an SFC-licensed VATP or entities that meet the crypto custody standards set forth by the HKMA.