The Securities and Futures Commission of Hong Kong has rolled out fresh guidelines for cryptocurrency exchanges that offer staking services.
In a recent announcement made on April 7, the SFC laid out new directives for crypto exchanges involved in staking services, as well as for locally licensed funds that have exposure to digital assets engaged in staking. This development comes on the heels of comments from the SFC’s executive director of investment products, who expressed the commitment of the regulatory body to supporting Hong Kong’s progression into the Web3 space.
“The SFC is dedicated to facilitating Hong Kong’s Web3 journey.”
In its announcement, the regulatory authority acknowledged the potential advantages of staking, which can enhance the security of blockchain networks and provide investors with opportunities to earn yields. As a result, these updated guidelines permit crypto exchanges to offer staking services.
Related: Shares of Hong Kong investment firm soar 93% after acquiring just one Bitcoin
New regulations for staking services
The new regulations were conveyed by the authority in its latest circular directed at crypto exchanges operating under its jurisdiction. The SFC mandates that exchanges secure written consent prior to offering staking services, maintain control over the staked virtual assets, and avoid outsourcing custody to third parties.
Exchanges that engage in staking must transparently communicate all associated risks and pertinent details regarding fees, minimum lock-up durations, processes for unstaking, measures for outages, and custodial arrangements to their clients. Additionally, these providers need to provide regular reports on their staking operations to the SFC.
A similar circular was also distributed to crypto fund operators regulated by the SFC, with the new regulations applicable to funds that dedicate more than 10% of their net asset value to digital assets. Such funds may only acquire virtual assets that are available to the local public and must rely on SFC-approved platforms. Furthermore, leveraging exposure is not allowed.
Funds are permitted to engage in staking as long as it aligns with the fund’s objectives, accompanied by clear disclosures and strict controls. An investor notice and possibly shareholder approval might be necessary if the implementation of staking results in significant changes to strategy or risk profiles.
Hong Kong’s commitment to Web3
In her recent address, the SFC’s executive recognized that the Web3 landscape is still developing and that “its full benefits will reveal themselves over time, likely with some twists and turns.” She referenced the speculative nature of non-fungible tokens (NFTs) as a cautionary example that calls for a careful regulatory approach:
“Instead of pursuing every fleeting trend, we advocate for a pragmatic strategy — reinforcing the fundamentals and cultivating a supportive ecosystem for Web3 to flourish sustainably.”
Related: Hong Kong remains a ‘dynamic and open market’ for cryptocurrencies, states financial secretary
The official’s remarks follow recent news of the cryptocurrency exchange Bybit announcing its intention to close its NFT marketplace due to a cooling market. This follows a similar decision made by a major NFT marketplace in late March.
Currently, the NFT market is experiencing a notable decline. Daily trading volume in NFTs was over $18 million 364 days prior to Bybit’s announcement but dropped to $5.34 million when the closure news became public — representing a 70% decrease.
Explaining why Web3 companies should consider Hong Kong as their base, the executive pointed out that the city holds third place in the Global Financial Centres Index. Moreover, local regulators have established clear frameworks for crypto industry entities, facilitating access to Asian markets.
Top 10 Global Financial Centres Index. Source: LongFinance
In her concluding remarks, she stated, “We find ourselves at a pivotal moment where traditional finance intersects with the digital economy, promising positive changes for our financial markets.” She went on to say:
“We’ve achieved the breakthrough from zero to one, and the future of this success depends significantly on how we nurture this convergence, transitioning from one to 100.”
These thoughts reflect the growth of Hong Kong’s fintech sector, which has seen a 250% increase since 2022. The regulatory authority has recently unveiled a new roadmap intended to position the city as a global hub for cryptocurrencies.
The “ASPIRe” roadmap aims to future-proof the local virtual asset landscape and encompasses 12 initiatives across five major categories, including facilitating market access, refining compliance frameworks, and enhancing blockchain efficiency.
Magazine: Korea set to lift corporate crypto ban, caution advised for crypto mining HDs: Asia Express