above: Julia Leung

Hong Kong regulators plan to loosen current restrictions around the trading of blockchain-related products, including enabling trading of “virtual asset” exchange-traded funds (ETFs) backed by Bitcoin and Ethereum futures, according to Julia Leung , the deputy chief executive officer of the Hong Kong Securities and Futures Commission. They also plan to review regulations that do not allow retail investors to trade digital products on regulated exchanges,

Leung gave the updates at the Hong Kong Fintech Week as the city struggles to attract top-tier finance talent and bolster its reputation as a global hub of finance after three years of strict Covid-19 restrictions. It’s part of an aggressive shift in policymaking over the past year to address shortfalls brought on by some of the most severe Covid-19 restrictions in the world.

Leung mentioned three areas where the SFC was moving to allow the trading of virtual assets. The first is enabling the trading public to buy and sell virtual-asset futures ETFs. “At the initial stage, we expect the underlying assets to be confined to Bitcoin futures and Ether futures traded on the Chicago Mercantile Exchange,” she said.

“We have come to believe that some initial concerns about virtual-asset futures ETFs have become manageable and can be addressed with proper safeguards,” she said.

Investor requirements loosened?

Secondly, Leung said the SFC may loosen restrictions on what type of investors can trade virtual assets in Hong Kong. Currently, a bill is being floated to the city’s legislature that would enable Hong Kong’s digital asset exchanges to be regulated, but that bill does not contain language to enable retail investors, or those trading with less than $1 million of assets. Leung said the SFC would consult with the market to figure out if those regulations could be relaxed to prevent retail investors from trading in opaque markets.

“The SFC is minded to consult the public on whether the professional investor-only requirement could be relaxed,” she said. The SFC will announce a policy position soon, she said.

Lastly, Leung indicated that the commission would also loosen classifications of Securities Token Offerings, or STOs. The classification and packaging for these STOs would likely be traded in the form of a bond, she said.

“Our preliminary view is that tokenized securities, as digital representations of traditional securities on a blockchain, should be treated in a similar way as existing financial instruments,” she said. “They have similar terms, features and risks as traditional securities, so it does not seem appropriate to classify them as ‘complex products’ merely because they are issued or traded on a blockchain.”

Recently, the Hong Kong Monetary Authority announced it will issue green bonds on the blockchain to institutional investors, but it’s unclear when this will start.

Change in tone

The revelations are a change in regulators’ policy tone. As far back as 2017, the SFC and other finance regulators had warned the public to stay away from crypto.

But the government is lately trying to draw more finance talent to the city after three years of closed borders due to Covid-19. China remains the only country to date to enforce severe restrictions on inbound travelers to the city.

“It is high time that Hong Kong provided a regulated, secure, and innovative solution – a platform that offers web3 peer-to-peer experience without compromising web2 advantage of investor protection and safety,” Adrian Cheng, chief executive officer of New World Development, said at the conference. “A common wish list item from institutional funds and family offices is a one-stop, secure wealth management solution that integrates both traditional assets and virtual assets.”

Arta TechFin, which Cheng owns, is developing an app that would monitor and enable crypto-related investments.

Elsewhere in Asia, countries have been pushing to adopt new cryptocurrency regulations to make it easier for investors and businesses to participate in the fast-growing global market.

This year, Japan announced a raft of new changes to crypto regulations, and Singapore has steadily been increasing its support of cryptocurrency trade, drawing entrepreneurs from around Southeast Asia to develop blockchain and digital asset startups.