Nikolas Sargeant
Hong Kong is gearing up to embrace spot crypto ETFs, as announced by its financial regulator on December 22. The Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority jointly revealed their revised policy for intermediaries involved in virtual asset-related activities. The SFC is now prepared to accept applications for various fund authorizations, including Virtual Asset Spot exchange-traded funds (VA Spot ETFs) and existing crypto futures ETFs.
In its circular on the same day, the SFC outlined the criteria for funds seeking authorization, emphasizing direct investment in identical spot Virtual Asset (VA) tokens available to the Hong Kong public on SFC-licensed Virtual Asset Trading Platforms (VATPs). The regulator stressed that these ETFs' cryptocurrency transactions must occur through SFC-licensed crypto platforms or authorized financial institutions. In-kind and in-cash subscriptions and redemptions are permissible for SFC-authorized spot Virtual Asset (VA) ETFs.
Regarding custody, the SFC specified that the fund’s trustee or custodian should delegate its crypto custody function only to an SFC-licensed Virtual Asset Trading Platform (VATP) or those meeting the crypto custody standards set by the HKMA.
For spot virtual asset valuation, the regulator-mandated fund management companies adopt an indexing approach based on VA trade volume across major VA trading platforms. According to the circular, funds planning to have crypto exposure exceeding 10% of their net asset value must undergo prior consultation with the SFC.
In contrast to mainland China's stringent stance on cryptocurrency activities, Hong Kong has welcomed crypto firms, actively encouraging collaboration with banks throughout the year. In October 2022, Hong Kong issued policy statements on cryptocurrencies to solidify its status as a global financial hub. In June, the city initiated its crypto licensing system for virtual asset trading platforms, enabling licensed exchanges to provide retail trading services.
