Hong Kong is ‘actively looking’ at authorising crypto ETFs

Hong Kong’s Securities and Futures Fee appears set to permit the launch of change traded funds monitoring cryptocurrency futures for retail buyers, citing the rising sophistication of investor safeguards.

Julia Leung, deputy chief govt and govt director of intermediaries on the SFC, stated the regulator was “actively seeking to arrange a regime to authorise ETFs that present mainstream digital belongings with acceptable investor guardrails”.

Within the preliminary phases, the SFC will solely enable ETFs investing in bitcoin futures and ether futures traded on the Chicago Mercantile Trade, Leung stated throughout her keynote handle at Hong Kong FinTech Week final week.

The most recent communication follows a joint circular from the SFC and the Hong Kong Financial Authority in January this yr that stated a “restricted suite” of merchandise linked to digital belongings might be permitted for Hong Kong retail buyers.

This text was beforehand revealed by Ignites Asia, a title owned by the FT Group.

Leung characterised the prevailing skilled investor requirement for crypto belongings investments because the “elephant within the room”, noting that when the SFC launched this requirement as a part of its digital belongings framework 4 years in the past, the territory’s crypto belongings trade was nonetheless comparatively new.

The SFC first issued guidelines on digital belongings in November 2018 restricting entry to virtual-assets-based funds to skilled buyers because of the heightened dangers related to the asset class, in addition to the shortage of regulation round sure platforms or managers within the house.

“Given the novelty of our framework and the excessive volatility of crypto belongings, we believed it was prudent to impose an overarching ‘skilled investor’ restriction,” she stated.

Hong Kong’s crypto asset ecosystem had made “substantial development” prior to now 4 years, nevertheless, with extra world monetary establishments and repair suppliers coming into this house and offering institutional-grade infrastructure. Throughout this time, the regulator had gained extra expertise in regulating digital asset buying and selling platforms and fund companies, she argued.

“Now we have come to consider that some preliminary issues about digital asset futures ETFs have grow to be manageable and will be addressed with correct safeguards,” stated Leung.

“It’s now an opportune time to overview the ‘skilled investor solely’ requirement,” she added.

Richard Douglas, Hong Kong chief govt at Saxo Markets, stated the opening-up of crypto-based ETFs to native retail buyers would assist Hong Kong “restore its credentials as a finance hub and entice extra expertise to the town after a tough few years”.

The demand from retail purchasers for crypto merchandise was there, and Saxo was assessing which of its present merchandise may “be a superb match” for retail buyers, Douglas stated in an organization assertion.

Gary Tiu, govt director of digital belongings funding agency BC Expertise Group and head of regulatory affairs, added {that a} leisure of guidelines to permit retail entry would “encourage tier-one monetary establishments to speed up entry into digital belongings in Hong Kong”.

Leung’s speech comes as rival Asian finance and digital belongings hub Singapore is taking steps to crack down on cryptocurrency suppliers after initially establishing a comparatively relaxed regulatory framework.

The Financial Authority of Singapore has repeatedly warned about retail investments in cryptocurrencies and labored to limit retail entry to the asset class.

In January, it launched new pointers prohibiting digital fee token service suppliers from almost all types of public promoting exterior of their very own web sites, cellular apps and social media accounts.

In distinction, Australian regulators have led the best way within the area in terms of retail crypto ETFs, with the primary bitcoin and ether-based merchandise launching in Could.

Constancy grew to become the primary giant world asset supervisor to offer an exchange-traded product bodily backed by bitcoin in Hong Kong final week, although the product is simply obtainable to skilled buyers.

“The crypto neighborhood has lengthy believed that regulation inhibits innovation, limiting fintech improvement and thus investor selection,” the SFC’s Leung stated in her keynote handle.

However, she added that this argument had been challenged by latest occasions within the cryptocurrency house, together with the collapse of Luna and Terra in Could, and the following chapter of Three Arrows Capital.

“The excesses of sure crypto companies threaten not simply their very own wellbeing, but in addition that of buyers and the complete crypto ecosystem,” she argued, noting that complete market capitalisation of crypto belongings had shrunk from $3tn a yr in the past to $1tn at present.

“The crypto winter has strengthened the resolve of world monetary regulators to control crypto asset service suppliers,” she added.

Leung additionally introduced that the regulator was making ready to “modify our regulatory response and permit retail entry” to safety token choices, offered sure safeguards had been in place.

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