Strict Requirements for Custody and Valuation
In a move that sets Hong Kong apart from its neighboring Chinese mainland, the city is gearing up to pave the way for spot crypto exchange-traded funds (ETFs). The Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority, in a joint circular, announced that they are ready to accept applications for such ETFs.
The SFC emphasized the need for strict requirements in custody and valuation. Under their guidelines, the custodian of the fund must delegate its crypto custody function to a trustee licensed by the SFC or one that fulfills the crypto custody criteria outlined by the Hong Kong Monetary Authority (HKMA).
For the valuation of spot virtual assets, the regulator specified that the fund’s management companies should adopt an indexing approach based on trade volume on major virtual asset trading platforms.
Embracing Crypto Amid Broader Crackdown
Hong Kong has shown a progressive stance toward crypto firms this year, unlike its neighboring Chinese mainland, which has imposed stricter regulations on cryptocurrency trading and mining. In fact, Hong Kong has actively encouraged banks to work with crypto companies.
Jason Chan, a partner at Hong Kong-based law firm Howse Williams, expressed that Hong Kong is very receptive to the crypto industry and could potentially be one of the first developed financial markets to approve a crypto spot ETF. This is in line with the city’s efforts to boost innovation and customer experience in the financial sector.
Hong Kong launched its crypto licensing regime for virtual asset trading platforms in June, enabling licensed exchanges to offer retail trading services. Julia Leung, CEO of Hong Kong’s SFC, stated in November that the regulator is evaluating spot crypto ETFs, showing openness to innovative technologies that enhance efficiency and customer experience. Presently, several futures-based crypto ETFs, such as Samsung Bitcoin Futures Active ETF, CSOP Bitcoin Futures ETF, and CSOP Ether Futures ETF, are listed in Hong Kong.