On April 7, Hong Kong’s top finance sector watchdog officially approved digital asset trading platforms and exchange-traded funds (EFTs) offering staking services, which is the latest landmark on its roadmap to make the special administrative region a “virtual asset hub.”
In a statement, the Securities and Futures Commission (SFC) announced it had provided regulatory guidance about
staking for licensed “virtual asset trading platforms” (VATPs) and digital asset ETFs.
“We have noted investors’ demand for staking services, and the potential for staking activities to contribute to the security of the blockchain network,” the regulator said. “The SFC recognises the potential benefits of staking in enhancing the security of blockchain networks and allowing investors to earn yields on virtual assets within a regulated market environment.”
The SFC clarified that VATPs and digital asset ETFs interested in providing staking services must obtain prior written approval from the SFC, and the regulator will impose specific conditions on licensees, such as implementing effective policies to prevent or detect errors and other improper activities, disclose of associated risks and charges, and relevant due diligence.
The regulator also stipulated that VATPs must maintain control of all mediums through which the client’s digital assets may be withdrawn from the staking services and that custody of client digital assets by third-party service providers is not permitted.
“Broadening the suite of regulated services and products is crucial to sustain the healthy advancement of Hong Kong’s virtual asset ecosystem,” said Julia Leung, the SFC’s Chief Executive Officer. “But the broadening must be done in a regulated environment where the safety of client virtual assets continues to be front and centre of the compliance framework for offering such service.”
The SFC noted that the new staking guidelines are part of its roadmap, announced in February of this year, as part of the Hong Kong government’s initiative to make the territory a digital asset hub.
Digital asset hub
The SFC outlined twelve major initiatives to enhance the security, innovation and growth of Hong Kong’s digital asset
market under a five-pillar roadmap called “ASPIRe” —Access, Safeguards, Products, Infrastructure and Relationships.
Amongst the twelve initiatives were establishing licensing regimes for trading and custody services; attracting global platforms and liquidity providers; exploring a regulatory framework for professional investor-exclusive new token listings and digital asset derivative trading; modernizing reporting, surveillance and cross-agency collaboration; and “consider allowing staking and borrowing/lending services under clear custody and operational guidelines.”
The latter of these, as of Monday, the SFC has now progressed.
Hong Kong first openly signalled its intention to become a digital asset hub back in January 2023, when the region’s Financial Secretary Paul Chan said that—under the policies of “grabbing enterprise” and “grabbing talents”—the government was actively reducing the tax burden on fintech and digital asset firms interested in setting up shop in Hong Kong.
A few months later, in March of that year, the SFC published its proposed rules for digital asset trading platforms, including allowing retail investors to access locally licensed exchanges.
Since then, various other measures have demonstrated Hong Kong’s embracing of the digital asset space, including, in March 2024, becoming the first region beyond mainland China to support the digital yuan central bank digital currency (CBDC) and in December of last year the introduction of its long-awaited stablecoin bill.
All of this led to the SFC officially announcing its roadmap and twelve initiatives in February.
“Adhering to the core principles of investor protection, sustainable liquidity and adaptive regulation, the roadmap in itself is a calibrated response to emerging VA [virtual asset] market challenges and thus helps future-proof our ecosystem,” said Dr Eric Yip, the SFC’s Executive Director of Intermediaries, at the time.
He added, “The roadmap is not a final destination but a living blueprint, one that invites collective efforts to advance Hong Kong’s vision as a global hub where innovation thrives within guardrails.”
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