Hong Kong is set to welcome spot cryptocurrency exchange-traded funds (ETFs) as the Securities and Futures Commission (SFC) expresses readiness to receive applications for the authorization of various funds, including Virtual Asset Spot ETFs (VA Spot ETFs). In a collaborative announcement with the Hong Kong Monetary Authority, the SFC outlined the criteria for these ETFs to directly invest in identical spot Virtual Asset (VA) tokens available to the Hong Kong public on SFC-licensed Virtual Asset Trading Platforms (VATPs).


Key Points:

  • Regulatory Readiness: The SFC is prepared to receive applications for the authorization of virtual asset spot ETFs alongside existing crypto futures ETFs, signaling regulatory readiness for spot cryptocurrency ETFs in Hong Kong.

  • Transaction Requirements: Cryptocurrency transactions conducted by these ETFs must take place through SFC-licensed crypto platforms or authorized financial institutions, ensuring compliance with regulatory standards.

  • Subscription and Redemption: In-kind and in-cash subscriptions and redemption are permissible for SFC-authorized spot virtual asset ETFs, providing flexibility in managing fund activities.

  • Custody Standards: The SFC specifies that the fund's trustee or custodian should delegate its crypto custody function only to an SFC-licensed virtual asset trading platform or entities meeting the crypto custody standards set by the Hong Kong Monetary Authority (HKMA).

  • Valuation Approach: Management companies of these funds should adopt an indexing approach based on VA trade volume across major VA trading platforms for spot virtual asset valuation.

  • Consultation Requirement: Funds planning to exceed crypto exposure by 10% of their net asset value must undergo prior consultation with the SFC, ensuring proactive regulatory engagement.

Hong Kong's Crypto-Friendly Approach: Hong Kong's welcoming stance toward cryptocurrency activities, in contrast to the crackdown in mainland China, is evident in initiatives such as issuing policy statements on cryptocurrencies in October 2022 and implementing a crypto licensing system for virtual asset trading platforms in June. This approach aims to position Hong Kong as a global financial hub and encourages collaboration between crypto firms and traditional banking institutions.

Conclusion: The SFC's openness to spot cryptocurrency ETFs reflects Hong Kong's commitment to fostering innovation and embracing digital assets within a well-defined regulatory framework. The announcement provides clarity on the criteria and regulatory expectations for Virtual Asset Spot ETFs, offering opportunities for crypto investment products to thrive in the region.


(AMAKA NWAOKOCHA, COINTELEGRAPH, 2023)