Regarding custody arrangements, the SFC emphasizes that the fund’s trustee or custodian can delegate its crypto custody function solely to an SFC-licensed VATP or entities meeting the crypto custody standards set forth by the HKMA.
Hong Kong has announced its readiness to receive applications from traditional financial companies interested in exploring the emerging economy by creating exchange-traded funds (ETFs) tracking spot-based cryptocurrencies.
The country already allows futures-based crypto ETFs and has approved listing ETFs such as the Samsung Bitcoin Futures Active, CSOP Bitcoin Futures, and CSOP Ether Futures.
The crypto-friendly nation is now prepared to open its borders to welcome spot ETFs for retail investors.
Hong Kong Ready for Crypto Spot ETFs
The country’s financial regulators, the Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) shared the news in a joint circular published on Friday.
According to financial watchdogs, the Asian nation has successfully reviewed its “professional investors only” regulation, established in 2018 to accommodate various investment options for retail investors, including digital assets.
“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),” reads the joint statement.
The regulators said they received increased requests from intermediaries regarding the potential distribution of investment products with exposure to virtual assets.
However, with the recent update, these companies can now submit applications for offering spot Bitcoin (BTC), Ethereum (ETH), or other digital asset funds for retail investors.
Hong Kong Imposes Strict Guidelines for Crypto Spot ETFs
In a separate circular, the SFC has outlined the criteria for approving crypto spot ETFs, detailing the requirements that financial regulators would consider.
According to the statement, companies must ensure that the funds comply with the relevant regulations in the Overarching Principles Section and the Code to offer such investment products to customers. These regulations are stipulated in the Unit Trusts and Mutual Funds (UT Code) within the SFC Handbook, encompassing Unit Trusts, Mutual Funds, Investment-Linked Assurance Schemes, and Unlisted Structured Investment Products.
Furthermore, SFC-authorized VA Funds management companies must demonstrate a strong track record of regulatory compliance before offering crypto spot ETFs.
They must also have at least one competent staff member with relevant experience managing virtual assets or related products. These companies will be subject to additional terms and conditions imposed by the Licensing Department when applicable.
The circular specified that crypto transactions conducted by these ETFs must take place on SFC-licensed crypto platforms or authorized financial institutions.
Regarding custody arrangements, the SFC emphasizes that the fund’s trustee or custodian can delegate its crypto custody function solely to an SFC-licensed VATP or entities meeting the crypto custody standards set forth by the HKMA.
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