Hong Kong Government Reconsiders Virtual Asset ETFs, Tokenized Securities, and Retail Investors

The administration declares that it is willing to collaborate with virtual asset service providers and invite them to the city.

Financial Services and Treasury Bureau of Hong Kong made a policy statement on virtual assets at the start of Hong Kong FinTech Week, the city's premier technology convention, on Monday.

The statement indicates that Hong Kong is "ready to engage" with global virtual asset service providers and invite them to the city. As part of planned modifications to the Anti-Money Laundering and Counter-Terrorism Financing Ordinance, the Hong Kong Legislative Council, a Special Administrative Region of the People's Republic of China, is now considering Hong Kong's new VASP licencing framework. The policy will go into force on March 1 of next year.

According to the policy statement, the Securities and Futures Commission of Hong Kong will conduct a public consultation on how retail investors might be granted "appropriate access to virtual assets" on licenced exchanges.

Retail users can currently trade cryptocurrencies on unlicensed exchanges such as Binance. After the implementation of the VASP regime, only VASP-licensed exchanges will be able to sell crypto services, and some may be able to offer crypto services to retail users.

The policy statement adds that Hong Kong is "open to the prospect" of having exchange-traded funds that invest in virtual assets, promising to increase investor protection and guarantee that appropriate regulatory structures are in place.

At Hong Kong FinTech Week, Securities and Futures Commission Deputy Chief Executive Officer Julia Leung stated, "The SFC has been actively seeking to establish a framework to authorise ETFs that give exposure to mainstream virtual assets with suitable investment restrictions."

Leung said that futures ETFs on virtual assets will be subject to extra management company, investment strategy, disclosure, and investor education requirements. Initial underlying assets will be limited to Bitcoin and Ether futures sold on the Chicago Mercantile Exchange, according to Leung.

Leung also disclosed modifications to the SFC's perspective on tokenized securities during her address. She stated that the SFC believes tokenized securities should be treated similarly to current financial instruments. Leung stated that the SFC will no longer categorise tokenized securities as complicated products simply because they are issued on the blockchain.

Leung stated that the SFC is willing to grant retail access if the necessary protections are in place. The SFC is currently drafting a circular outlining modifications to the security token regime.

Given the distinctions between traditional and virtual assets, the government is open to future revision of the property rights for tokenised assets and the legality of smart contracts, according to the statement.

Eddie Yue, chief executive officer of the Hong Kong Monetary Authority, stated at Hong Kong FinTech Week, "We were occasionally hesitant or even resistant, wondering how new creatures such as cryptocurrencies, stablecoins, DeFi, and other blockchain-based innovations could fit into mainstream finance."

Yue stated that it had become evident that the underlying technology will flourish in a prosperous economy such as Hong Kong.

According to the policy statement, Hong Kong is considering pilot initiatives involving the issuing of NFTs during Hong Kong FinTech Week, the tokenization of green bonds, and eHKD.

Its virtual asset network might facilitate use cases such as art and collectibles trading, tokenization of antique products, and tokenization of debt securities, according to the announcement.

By fLEXI tEAM