HSBC Empowers Hong Kong’s Crypto Evolution: Enabling Bitcoin ETFs

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By A D

Hong Kong has been urging banks, including HSBC, Standard Chartered, and Bank of China, to engage with crypto clients, emphasizing the importance of conducting due diligence on potential customers without imposing unnecessary burdens.

HSBC has made headlines in Hong Kong as it becomes the first bank to enable customers to trade Bitcoin and Ethereum exchange-traded funds (ETFs). HSBC’s introduction of Bitcoin and Ethereum ETF trading allows its customers in Hong Kong to invest in these digital assets through regulated ETFs. Notably, the Hong Kong Stock Exchange lists several ETF options, including the CSOP Bitcoin Futures ETF, CSOP Ethereum Futures ETF, and Samsung Bitcoin Futures Active ETF, among others.

HSBC’s approval of Bitcoin and Ethereum ETF trading is expected to enhance the accessibility of cryptocurrencies for Hong Kong citizens. By offering these crypto investment products, HSBC provides individuals with a familiar and regulated investment avenue to enter the cryptocurrency market.

It’s important to note that HSBC customers in Hong Kong have been able to trade crypto investment products since their listing on the Hong Kong Stock Exchange in December. Initially, the listing included the CSOP Bitcoin Futures ETF and CSOP Ethereum Futures ETF, followed by the Samsung Bitcoin Futures Active ETF in January. HSBC’s investment platform now conveniently grants its customers access to these ETFs.

In order to safeguard investors from potential risks associated with cryptocurrencies, HSBC has launched the Virtual Asset Investor Education Center. This initiative aims to ensure that investors have a clear understanding of the nature, risks, and opportunities associated with crypto investments. Before engaging in crypto-related trading, investors must read and acknowledge their comprehension of the educational material and risk disclosures provided by the bank.

HSBC Hong Kong boasts a substantial digital banking presence, with approximately 1.7 million active mobile customers as of March 2022. Around 95% of all retail transactions conducted by HSBC in Hong Kong are processed online. With this extensive digital infrastructure, HSBC can conveniently provide its customers with access to crypto-related investment products through its established online banking and mobile app platforms.

Hong Kong’s Progressive Stance on Crypto

The Securities and Futures Commission in Hong Kong recently permitted retail trading of cryptocurrencies. Starting from June 1, the commission has been open to accept applications from exchanges seeking to offer such trading services. Exchanges have the autonomy to decide which cryptocurrencies they will make available, with a focus on those with significant market capitalisation and liquidity.

Licensed crypto exchanges in Hong Kong, namely HasKey Pro and OSL, have already partnered with local securities brokers to enable professional investors to trade crypto assets. With an updated anti-money laundering law coming into effect, unlicensed exchanges will be prohibited from selling cryptocurrency products to retail or professional investors in the city. Victory Securities, a partner of OSL, has observed a growing interest among retail clients in crypto trading and is preparing to accommodate them.

Hong Kong has also been urging banks, including HSBC, Standard Chartered, and Bank of China, to engage with crypto clients. The Hong Kong Monetary Authority (HKMA) recently questioned these banks regarding their hesitancy in accepting crypto exchanges as clients. The HKMA emphasized the importance of conducting due diligence on potential customers without imposing unnecessary burdens, particularly for those intending to establish offices in Hong Kong to explore opportunities.

According to the CEO of the Securities and Futures Commission, Julia Leung Fung-yee, cryptocurrency trading plays a vital role in the virtual asset ecosystem. Hong Kong acknowledges the significance of crypto trading and welcomes the application of related technologies in financial services, including bond tokenization and investment funds. Leung highlighted the importance of incorporating virtual asset providers into the regulatory system to foster innovation and build market trust after the FTX bankruptcy, while ensuring investor protection by considering the risks faced by financial institutions.

Hong Kong’s approach to cryptocurrency trading diverges from that of mainland China, where such transactions have been banned since September 2021. Exchanges will bear the responsibility of ensuring that mainland investors do not participate in retail crypto trading. BTSE, a digital asset exchange based in Taipei, intends to apply for a license to operate in Hong Kong and hopes that the city’s securities watchdog will expand its regulations to encompass margin and derivatives trading, as well as allow retail investors to trade stablecoins.

Julia Leung Fung-yee, the CEO of Hong Kong’s Securities and Futures Commission (SFC), underscored the significance of crypto trading within the virtual asset ecosystem. The importance of crypto trading and the adoption of related technologies, such as bond tokenization and investment funds, were acknowledged by Leung as being recognised by Hong Kong in the financial services sector.

The aftermath of the collapse of the crypto exchange FTX in November 2022 saw Hong Kong’s implementation of positive web3 regulations, which played a vital role in the development of its virtual asset ecosystem. Leung emphasized the introduction of a new licensing system for virtual asset providers to ensure the protection of investors while also considering the risks faced by financial institutions. Incorporating virtual asset providers into the regulatory system was viewed by Leung as a critical step in fostering innovation and strengthening market trust, particularly following FTX’s bankruptcy.

In December 2022, Hong Kong’s legislative council included virtual asset service providers within the same legislation governing traditional financial institutions. The city’s financial regulator implemented a new regulatory framework for crypto on June 1, which introduces stringent Anti-Money Laundering guidelines and investor protection laws for digital asset exchanges. This framework also expands the trading access of virtual assets to retail investors, going beyond professional investors and traders with a substantial amount of bankable assets.Over the past year, Hong Kong has been actively positioning itself as a leading crypto hub in Asia. Despite the cryptocurrency ban in mainland China, Hong Kong has received support from its neighboring region, fueling speculation that China may consider lifting the ban on digital assets in the near future.

The regulatory developments in Hong Kong and the region’s efforts to become crypto-friendly present attractive opportunities for firms like Circle. As part of its expansion strategy in Asian markets, Circle has obtained a license as a major payments institution in Singapore. This significant milestone enables Circle to offer digital payment token services for domestic and cross-border money transfers. Circle CEO Jeremy Allaire revealed that the US-based stablecoin issuer, Circle Internet Financial Ltd., is closely monitoring the recent regulatory changes in Hong Kong. With the implementation of new crypto rules in Hong Kong earlier this month, the region has become a focal point for crypto firms, especially as the US intensifies its regulatory crackdown.

As a result of Hong Kong’s efforts to position itself as a crypto-friendly hub, numerous crypto firms have been attracted to the city. Over the past year, more than 150 web3 companies have established operations in Hong Kong’s Cyberport. Earlier this year, the government allocated 50 million yuan ($7 million USD) to expedite the development of web3 technologies. Cyberport, managed by a government-owned subsidiary, currently hosts a total of 1,900 enterprises, as indicated by Hong Kong’s Financial Secretary Paul Chan Mo-po.

Read: Hong Kong on the Path to Becoming Asia’s Crypto Hub

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