Hong Kong Opens Applications for Cryptocurrency ETFs

The city’s financial regulator announced on December 22 that it is ready to accept applications for spot cryptocurrency exchange-traded funds (ETFs) in Hong Kong.

The Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority, which serves as the de facto central bank of the city, made a joint announcement today stating that both institutions have reviewed their existing policy regarding intermediaries that are involved in activities linked to virtual assets.

The Securities and Futures Commission (SFC) has indicated that it is prepared to receive applications for the authorization of a variety of funds, including exchange-traded funds to invest in virtual assets (VA Spot ETFs), in addition to the crypto futures ETFs that are already in existence.

The Securities and Futures Commission (SFC) issued another circular on December 22 outlining the requirements for funds to directly invest in identical spot Virtual Asset (VA) tokens available to the Hong Kong public on SFC-licensed Virtual Asset Trading Platforms (VATPs).

These exchange-traded funds (ETFs) are required to undertake cryptocurrency transactions through SFC-licensed cryptocurrency platforms or regulated financial institutions, according to the Securities and Futures Commission (SFC).

In addition, the regulatory body stated that subscriptions and redemptions in cash and kind are acceptable for SFC-authorized spot virtual asset (VA) exchange-traded funds (ETFs).

The Securities and Futures Commission (SFC) stipulated that the trustee or custodian of the fund should only delegate the responsibility of crypto custody to a virtual asset trading platform (VATP) that is regulated by the SFC or to those who meet the crypto custody requirements established by the Hong Kong Monetary Authority (HKMA).

The regulatory body further recommended that the management companies of the fund adopt an indexing approach based on VA trade volume across major VA trading platforms for spot virtual asset value.

According to the circular, funds that want to have cryptocurrency exposure equivalent to or greater than ten percent of their net asset value are required to have prior consultation with the SFC.

When compared to mainland China, which has been implementing a comprehensive crackdown on activities related to cryptocurrencies, Hong Kong has been welcoming to cryptocurrency companies this year and has actively encouraged companies to collaborate with banks.

Hong Kong published several policy pronouncements regarding cryptocurrencies in October 2022 to strengthen its position as a global financial hub. In June, the city launched its cryptocurrency licensing system for platforms that trade virtual assets.

This system makes it possible for approved exchanges to begin offering retail trading services.