Hong Kong Officials Recommends Self-Regulatory Committee for Compliance Monitoring in Crypto Industry

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The Hong Kong Securities & Futures Professionals Association (HKSFPA) advocated establishing a self-regulatory committee within the city’s crypto firms to enhance compliance monitoring on April 22.

“Many economically developed regions in the world have established statutory semi-official industry self-regulatory institutions to focus on industry development,” Hong Kong regulators wrote.

HKSFPA Calls for Industry-Led Licensing Authority in Hong Kong’s Financial Market

In a recommendation letter, the HKSFPA highlighted the absence of an overarching organization to foster the development of Hong Kong’s financial market industry. It criticized the current regulatory landscape as overly focused on supervision without adequate mechanisms for industry-wide coordination.

Highlighting the importance of Hong Kong maintaining its competitiveness in the global securities market and solidifying its position as an international financial center, the HKSFPA suggested the Securities & Futures Commission (SFC) delegate licensing powers to industry players. 

Specifically, it proposed that the SFC retain supervision over market conduct while granting licensing authority solely to the securities industry. Additionally, the recommendation emphasized the establishment of a self-regulatory institution comprising representatives from the futures, asset management, and virtual asset industries.

This proposal aligns with the HKSFPA’s previous recommendation last August, which stressed balancing supervision and development to prevent the Hong Kong virtual assets industry from being excessively regulated.

The efficacy of self-regulation in maintaining a balanced risk-reward dynamic is a subject of debate, however, as evidenced by recent developments in Lithuania. The Baltic nation, grappling with compliance failures and embezzlement in its crypto sector, is tightening its regulatory framework starting in 2025, despite initially granting licenses to over 580 crypto firms with limited oversight.

In contrast, Hong Kong regulators have exhibited greater tolerance towards virtual asset firms, as demonstrated by the SFC’s recent approvals of spot Bitcoin and Ethereum ETFs. Last year, the regulator issued official virtual asset licenses to crypto exchanges such as Hashkey and OSL, signaling a relatively accommodating stance towards the industry.

Hong Kong Expected to Approve First Batch of Spot Bitcoin ETFs

The Hong Kong Securities and Futures Commission (SFC) approved the first batch of spot Bitcoin ETFs on April 15. Following this approval, the Hong Kong Stock Exchange (HKEX) will require approximately two weeks to finalize listing procedures and other arrangements.

Hong Kong’s securities regulator issues conditional authorization letters to ETF applications that generally meet its requirements, subject to various conditions such as fee payments, document filing, and HKEX’s listing approval.

MASSIVE BITCOIN SUPPLY SHOCK

Here’s why:

With the recent bitcoin halving,
miners can now only produce a max
of 450 BTC daily.

US Bitcoin spot ETFs are buying an
average of 3,000 BTC daily.

Hong Kong ETFs are about to start
trading very soon.

Australia…

— Ash Crypto (@Ashcryptoreal) April 22, 2024

The approved spot Bitcoin and Ether ETFs launched as in-kind ETFs, allow new ETF shares to be issued using BTC and ETH. This model contrasts with the cash-create redemption model, where new ETF shares are created only with cash. In the United States, spot Bitcoin ETFs currently use the cash-create model.

While the approval has garnered praise from many in the crypto community, including local Hong Kong exchanges, some express skepticism about the ETFs’ success within the region. 

“Mainland China investors probably won’t be eligible to buy Hong Kong-listed spot Bitcoin and Ether ETFs as they are barred from buying virtual assets,” Bloomberg ETF analyst Eric Balchunas stated in an April 17 post on X.

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