Hong Kong’s financial regulator has revised its earlier restrictions on the sale of spot products, which were initially limited to professional investors. This update permits intermediaries to offer services to a broader clientele.
The Securities and Futures Commission (SFC) announced the policy update, citing the need to adapt to evolving market dynamics and respond to inquiries from the industry seeking expanded retail access through intermediaries. The goal is to allow investors to directly deposit and withdraw virtual assets with intermediaries while implementing necessary safeguards.
The regulatory change aligns with the increasing interest in spot bitcoin exchange-traded funds (ETFs). JPMorgan recently suggested that the approval of spot bitcoin ETFs in the United States could occur within a few months, possibly before the January 10 deadline for the Ark 21Shares application. It also follows the SFC’s investigation into JPEX, a cryptocurrency exchange accused of operating without a license, leading to arrests and the publication of details regarding licensed applicants.
However, there are some caveats to this new approach. Hong Kong remains cautious about overseas virtual asset (VA) products, deeming them complex and therefore high-risk. The circular emphasizes that VA-related products classified as complex should be exclusively available to professional investors. For example, an overseas non-derivative VA ETF would likely fall into this category.
Another requirement is that potential clients must undergo a one-time assessment to evaluate their knowledge of investing and ensure they possess sufficient net worth to manage the risks associated with virtual asset trading. Intermediaries must also provide clients with comprehensive risk disclosure statements.
Hong Kong’s aspirations to become a virtual asset hub became apparent with the implementation of a new regulatory framework in June, which allowed for applications for crypto trading platform licenses. In August, the first set of licenses was granted, permitting exchanges to serve retail customers. This marked a significant shift following 18 months of regulatory reluctance towards cryptocurrencies.