Hong Kong has announced its readiness to accept applications for spot cryptocurrency Exchange-Traded Funds (ETFs), marking a significant move in the city’s embrace of the burgeoning cryptocurrency industry. In a joint circular released today, the Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority, the de facto central bank of the region, declared their willingness to accept applications for these financial instruments.
The move by the regulatory authorities comes after a thorough review of their existing policies concerning intermediaries engaged in virtual asset-related activities. It expands on the existing framework for cryptocurrency futures ETFs, as the SFC stated that it 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).”
In a separate circular also released today, the SFC outlined specific requirements for funds seeking to invest directly in spot virtual assets accessible to the Hong Kong public, trading on SFC-licensed virtual asset trading platforms (VATPs). Notably, the SFC stipulated that transactions of cryptocurrencies by such ETFs must be conducted through SFC-licensed crypto platforms or authorized financial institutions.
The regulatory body further emphasized that both in-kind and in-cash subscription and redemption mechanisms are permissible for SFC-authorized spot VA ETFs. When it comes to the custody of crypto assets, the SFC made it clear that trustees or custodians of the fund must delegate their crypto custody function exclusively to SFC-licensed VATPs or entities adhering to crypto custody standards issued by the Hong Kong Monetary Authority.
For the valuation of spot virtual assets, the management companies of the funds are expected to adopt an indexing approach based on VA trade volume across major virtual asset trading platforms, as outlined by the regulator. Additionally, the circular established that funds with crypto exposure exceeding 10% of their net asset value must undergo prior consultation with the SFC.
This announcement follows a series of policy statements released by Hong Kong authorities in October 2022, aimed at strengthening its position as a global financial centre. Moreover, in June of the same year, Hong Kong officially initiated its crypto licensing regime for virtual asset trading platforms, granting licensed exchanges the ability to offer retail trading services.
Julia Leung, Chief Executive Officer of Hong Kong’s SFC, expressed in November the regulator’s interest in assessing spot crypto ETFs, highlighting the importance of embracing innovative technology that enhances efficiency and customer experience. As of now, Hong Kong has listed several futures-based crypto ETFs, including the Samsung Bitcoin Futures Active ETF, CSOP Bitcoin Futures ETF, and CSOP Ether Futures ETF.
