Hong Kong Regulators Ready to Review Spot Crypto ETF Applications

By: Eliza Bennet

Financial regulators from Hong Kong's Securities and Futures Commission (SFC) and the Monetary Authority (HKMA) have signaled their readiness for the review of applications for spot crypto exchange-traded funds (ETFs). This information was revealed in a recent circular, aligning with a prevailing trend in Hong Kong towards more favorable regulations for the crypto sphere.

The SFC, led by CEO Julia Leung, had hinted last month that they might consider allowing retail investors to engage in trading spot crypto ETFs, provided that these investments were in adherence to local regulations. Spot-based ETFs have been attracting significant interest within the crypto community, with major financial players such as BlackRock and Grayscale applying for a spot-based Bitcoin ETF with the U.S. Securities and Exchange Commission (SEC).

In the meantime, SFC has detailed in a separate circular the parameters for the approval of an ETF application in Hong Kong. Transactions by said ETFs would necessitate SFC-licensed crypto platforms or financial institutions that comply with HKMA's regulatory requirements. Both in-kind and in-cash subscription and redemption models will be allowed for these spot ETFs. The SFC underlined that a fund’s trustee or custodian should delegate crypto custody functions only to an SFC-approved VATP or entities which meet the crypto custody standards defined by the HKMA.

While the U.S. SEC is still in the process of approving a spot Bitcoin ETF, these new developments propel Hong Kong’s position as a prominent crypto-friendly hub.