Why Hong Kong Could Allow Retail To Dabble Into Crypto ETFs

Why Hong Kong Could Allow Retail To Dabble Into Crypto ETFs

The local securities regulator in Hong Kong will review the rules for people to be able to trade crypto-linked Exchange Traded Funds (ETFs). According to a report by the South China Morning Post, Hong Kong’s Securities and Futures Commission (SFC) will take another look into its digital asset transaction regulation.

Implemented in 2018, this rule created many limitations for people to be able to gain exposure to crypto-assets with regulated exchanges or funds. The SFC will try to determine if the nascent asset class and its different investment products have matured enough.

In addition, the Hong Kong securities commission will attempt “to see if it is still fit for purpose and whether modifications are required”. In the past two years, many countries have greenlighted the launch of crypto-based ETFs with Canada taking the lead by allowing the launch of Bitcoin and Ethereum investment products.

The Hongkonger regulator has taken note of the growth in the sector, as the report claims by quoting the SFC deputy chief executive Julia Leung Feung-yee. She added the following during the 2021 Hong Kong FinTech Week:

(…) virtual assets are edging towards mainstream finance. More, (and) different types of virtual asset investment products are available and conventional exchanges overseas now offer cryptocurrency ETFs.

The rule was applied to investors with over $8 million HK. Its revision has also been driven by a number of requests to offer crypto investment products to private bank clients and institutions.

Thus, revealing that there is demand for the nascent digital asset class in the region. Similar to the U.S. Securities and Exchange Commission (SEC), the SFC could face pressure from consumers to allow them to gain exposure to Bitcoin and other cryptocurrencies via ETF products.

Hong Kong Could Move In Its Own Direction With Crypto Assets

According to the report, the rule has faced problems in terms of its enforcement as a lot of people have access to smartphones and other tools to trade in offshore crypto platforms.

The report claims that the SFC conducted a survey. The results reveal that 54% of the participants invested in crypto with an online trading platform. The sales from these transactions accounted for “one-fifth of all funds sold in Hong Kong”, the South China Morning Post said.

The SFC deputy chief executive believes the COVID-19 pandemic, the work-from-home environments, and the demand for digital products have “accelerated the use of technology” in the distribution of investment products.

The SFC is currently consulting with the Hong Kong Monetary Authority. It’s expected that the institutions publish a joint circular once the review process ends. Leung added:

These questions involve complicated issues, because the regulatory landscape is still very uneven. Some licensed firms wish to provide cryptocurrency trading services to clients either by acting as an introducing agent or through an omnibus account arrangement opened at a virtual asset platform.

As of press time, the total crypto market cap stands at $2.7 trillion with high expectations of further gains in Q4, 2021.

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