Hong Kong financial regulators are prepared for spot crypto ETF applications

Hong Kong’s Securities and Futures Commission (SFC) and the Monetary Authority (HKMA) announced their readiness to accept applications for spot crypto exchange-traded funds (ETFs) in a circular released on Dec. 22.

The regulators stated:

“The SFC and the HKMA have reviewed their existing policy for intermediaries which wish to engage in virtual asset-related activities (VA-related activities). The policy is updated in light of the latest market developments, where the SFC has authorised VA futures ETFs and is prepared to accept applications for the authorisation of other funds with exposure to virtual assets, including virtual asset spot exchange-traded funds (VA spot ETFs).”

This action aligns with the recent trend in Hong Kong towards embracing favorable regulations for the crypto sphere. The Asian country has proactively positioned itself as a crypto-friendly hub, introducing various initiatives to foster growth within the industry.

Last month, CryptoSlate reported that Julia Leung, the CEO of SFC, hinted that the regulator would consider allowing retail investors to trade spot crypto ETFs if these investments comply with local regulations.

Spot-based ETFs have garnered significant attention in recent months within the crypto community. Major financial players like BlackRock and Grayscale have filed applications for a spot-based Bitcoin ETF with the U.S. Securities and Exchange Commission (SEC).

However, despite widespread optimism regarding these ETFs, the SEC has yet to approve any application. Instead, the regulatory body has postponed its decision until the following year.

SFC outlines regulatory measures for Hong Kong ETFs

A separate SFC circular detailed the requirement for the regulator to consider approving an ETF application in Hong Kong.

According to the regulator, transactions by the ETFs must occur through SFC-licensed crypto platforms or authorized financial institutions that comply with HKMA’s regulatory requirements.

The regulator also noted that it would permit both in-kind and in-cash subscription and redemption models for these spot ETFs.

On custodial requirements, the SFC specified that the fund’s trustee or custodian should only delegate crypto custody functions to an SFC-licensed VATP or entities meeting the crypto custody standards outlined by the HKMA.

For the valuation of these spot virtual assets, fund management companies must implement an indexing method reliant on the trade volume of virtual assets across prominent trading platforms.