Hong Kong's SFC considers granting retail investors access to spot crypto ETFs

In January, the SFC limited access to crypto spot ETFs to professional investors. In October, it expanded access to more investors who met specific criteria.

By Shashank Bhardwaj

Published: Nov 6, 2023 03:37:07 PM IST

Updated: Nov 7, 2023 05:16:34 PM IST

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The securities regulator of Hong Kong, the Securities and Futures Commission (SFC), is considering allowing retail investors to invest in spot crypto Exchange Traded Funds (ETFs).

“The city is weighing retail-investor access to such spot ETFs, providing regulatory concerns are met,” said Julia Leung, Chief Executive Officer of the Securities and Futures Commission.

She added, “We welcome proposals using innovative technology that boosts efficiency and customer experience. We’re happy to give it a try as long as new risks are addressed. Our approach is consistent regardless of the asset.”

Throughout the year, Hong Kong regulators updated their crypto policies. In January, the SFC restricted access to crypto spot ETFs exclusively to professional investors with portfolios of at least 8 million HKD ($1 million).

In October, the SFC revised its rulebook to expand access. It allowed more investors to participate in spot crypto and ETF investments, given they passed a knowledge test and met net worth requirements. The requirements are less stringent than those for professional investors.

The SFC said, “The policy is updated in light of the latest market developments and enquiries from the industry seeking to further expand retail access through intermediaries and to allow investors to directly deposit and withdraw virtual assets to/from intermediaries with appropriate safeguards.”

Hong Kong also introduced a new virtual asset regulatory framework in June to regain its reputation as a cutting-edge financial hub. The regulations aimed to attract companies while focusing on investor protection - a need highlighted by the HK$1.6 billion ($204 million) fraud in the city at the unlicensed crypto exchange JPEX.

“The [JPEX] incident underscores the requirement for a robust, comprehensive regulatory framework. The SFC has enhanced transparency over applications for virtual-asset exchange licences.” Leung said. She declined to comment on the details of the JPEX incident.

Hong Kong and the SFC have stepped up efforts to create an Asia-Pacific digital asset hub while tackling the fallout of the JPEX scandal. Meanwhile, the United States faces challenges in approving spot crypto ETFs as the Securities and Exchange Commission (SEC) deliberates on the matter.

The decision of whether or not to allow spot crypto ETFs for retail investors is a complex one. The SFC will need to weigh the risks and benefits carefully. However, the fact that the SFC is now considering spot crypto ETFs for retail investors is a positive sign for the crypto industry.

Shashank is the founder of yMedia. He ventured into crypto in 2013 and is an ETH maximalist. Twitter: @bhardwajshash