Hong Kong is ramping up efforts to position itself as a global hub for digital assets.
The Securities and Futures Commission (SFC) of Hong Kong is mulling over retail access to spot crypto exchange-traded (ETF), according to Bloomberg. This move is part of the country’s attempts to foster the development of a tokenized investment market.
Julia Leung, CEO of the SFC, told Bloomberg that SFC is ready to review “proposals using innovative technology that boosts efficiency and customer experience.” She noted that the regulators are willing to give the spot products a try “as long as new risks are addressed.” They also plan to take a consistent approach “regardless of the asset.”
Hong Kong Likes Cryptos
Hong Kong has gradually shifted its stance toward cryptocurrency and crypto-related products. Previously, only investors with a minimum investment amount of HK$8 million (approximately $1 million) were allowed to buy crypto ETFs. The SFC explained that the change was made in response to market demand and to promote financial inclusion.
The new rules may let retail investors invest in crypto ETFs if they have completed a suitability assessment and met the required investment amount. Cryptocurrency exchanges will also be required to implement risk mitigation measures, such as providing educational materials to investors and setting limits on investment amounts.
Spot crypto ETFs are the current headlines, particularly spot Bitcoin and Ethereum products. Apart from the SFC, American regulators face pressure regarding investor demand for spot Bitcoin and Ethereum ETFs.
The U.S. Securities and Exchange Commission (SEC) is reviewing a number of spot Bitcoin and Ethereum proposals and is expected to give a final decision on ARK Invest and 21Shares’ applications in January 2024.
Hong Kong Regulators Issue Guidelines for Digital Asset Tokenization
In addition to fostering innovations, Hong Kong regulators also focus on providing market participants with clear guidance on the regulatory requirements. The SFC has recently issued guidance on the tokenization of SFC-authorized investment products.
According to the circular released on November 2, Hong Kong regulators would consider allowing market participants to offer tokenized investment products if they satisfy particular requirements detailed in the document.
Some of the key points are licensing requirements, product requirements, and investor protection measures.
Product providers are required to obtain approval from the SFC before offering tokenized investment products to their clients. Meanwhile, tokenized investment products must meet certain requirements, such as being adequately disclosed and having a clear redemption mechanism.
Product providers are also required to implement investor protection measures, such as conducting know-your-customer (KYC) checks and providing risk warnings.
“As the crypto ecosystem evolves step-by-step to the point where we’re comfortable, then we’re happy to open up more access to the wider investing public,” said SFC Executive Director Ashley Leung to Bloomberg.
The SFC guidelines came amid the blowup of JPEX. In September, the securities watchdogs sent a warning to the Dubai-based crypto exchange since it failed to comply with the latest regulations. The agency accused JPEX of operating illegally in Hong Kong after discovering that no unit of the JPEX group was licensed by the agency.
The regulatory crackdown also targeted influencers that promoted JPEX’s trading products. Following the move, Hong Kong regulators formed a task force to oversee crypto exchanges in October.
The specialized group will coordinate with the Hong Kong Police Force (HKPF) to monitor crypto exchanges, detect suspicious cryptocurrency transactions, provide risk assessment measures, and report to management agencies for investigation purposes.
Under the new rules, all crypto exchanges in the zone must apply for a virtual asset trading license. There are currently two licensed crypto exchanges in Hong Kong: OSL and HashKey. The SFC is still processing applications from other exchanges. It is expected that more exchanges will be granted licenses in the coming months.