• Hong Kong Government to consult on crypto-market access for the retail sector
• Open to the idea of listing digital-asset Exchange-traded funds

An international financial hub, the Hong Kong Government unveils its policy statement and plans to develop “a vibrant sector and ecosystem for Virtual Assets (“VA”) in Hong Kong.  The city aims to attain its credentials as a top Asian crypto hub to offer legalized retail trading and digital-asset exchange-traded funds.

The policy statement released on October 31 introduces a significant shift in the policies of the government that recently announced its intention to let retail traders invest directly in crypto and other digital assets.

The statement talks about the government’s vision and approach and mentions, ”We recognize VA is here to stay, given how it has attracted the attention of global investors and is increasingly viewed as a conduit for financial innovations, not to mention the future opportunities that will be opened up as VA moves into the areas of Web 3.0 and the Metaverse.”

The government announced the measures in a policy statement and they were further explained by the ministers and regulators on Monday. 

 The statement released at the start of FinTech Week on Monday said, “We will put in place timely and necessary crash barriers to mitigate actual and potential risks in line with international standards so that virtual asset innovations can thrive in Hong Kong in a sustainable manner.”

“Our policy stance on virtual assets is now clearly communicated to the global markets and it serves to demonstrate our commitment and determination to explore financial innovations together with the global virtual-asset community,” said Paul Chan Mo-po Financial Secretary.

Regulations

The city has launched a regulatory regime to license VA Exchanges using an “opt-in” approach. A regulatory framework for banks on the distribution, dealing, and advising of VA-related products have also been provided by the government.

The latest step taken by the authorities is to put together a licensing regime for VA service providers. This will look into “will align requirements for VA Exchanges in terms of anti-money laundering, counter-terrorist financing (“AML/CTF”), and investor protection”.

Moreover, financial intermediaries and banks will be able to partner with licensed VA Exchanges when offering clients VA dealing services, provided that relevant regulatory conditions are met.

Hong Kong’s Securities and Futures Commission (SFC) will conduct a public consultation to determine the crypto exposure level that retail investors would be granted. At the same time, the government has hinted that it would welcome crypto-related Exchange Traded Funds (ETFs) in its jurisdiction.

There is a possibility that the city has Exchange Traded Funds (“ETFs”) on VA in Hong Kong as soon as the Securities and Futures Commission (SFC) “will publish a circular on this”.

At present, to trade crypto, retail customers use unlicensed exchanges like Binance. Once the VASP regime gets into the picture, then crypto services will be offered only through VASP-licensed exchanges, and a few could offer crypto services to retail customers.

The policy statement reads that Hong Kong is “open to the possibility” of having exchange-traded funds on virtual assets, pledging to enhance investor protection and ensure suitable regulatory arrangements are in place. 

At Hong Kong FinTech Week, Julia Leung Securities and Futures Commission Deputy Chief Executive Officer, “The SFC has been actively looking to set up a regime to authorize ETFs [that] provide exposure to mainstream virtual assets with appropriate investment guardrails.”

They are focusing on promoting the overall growth of the sector in their market by providing connectivity between traditional financial institutions and VA players and by offering well-designed products.