Hong Kong establishes rules to enable crypto staking
Hong Kong regulator, the Securities and Futures Commission (SFC), has established guidelines for crypto staking service providers.
That’s according to a statement published by the SFC to its website on April 7. The guidance is aimed at licensed virtual asset trading platforms (VATPs) and SFC-authorized funds with exposure to digital assets.
Expanding service offering
The regulator points out that the guidance on staking falls in line with its recently announced “ASPIRe” roadmap, which is geared towards ensuring that the Chinese autonomous territory remains relevant in its efforts to maintain its status as a global hub for crypto businesses.
Expanding product and service offerings within the crypto sector was one of the five pillars of that plan. Smoothing the way for the offering of staking works towards fulfilling that aspect of the ASPIRe plan.
Written approval
In this guidance, the SFC sets out that licensed service providers must obtain written approval from the regulator before any such product can be offered to investors in Hong Kong. That stipulation applies to both VATPs and authorized funds with digital asset exposure.
Additionally, VATPs must retain control over staked assets, with no delegation in the custody of such assets to third parties permitted. In the case of authorized funds that include crypto assets, they must stake virtual asset holdings through licensed VATPs and other authorized institutions.
Required disclosures
The regulator has also stipulated that certain disclosures must be made by licensed exchanges to potential customers in respect of staking products. These include the disclosure of all associated risks, full transparency with regard to fees, minimum lock-up periods and custodial arrangements.
Commenting on the provision of this guidance, SFC CEO Julia Leung said that the provision of a greater range of regulated services and products is crucial in order to sustain continued growth of Hong Kong’s virtual asset ecosystem. However, she added that any broadening of the range of services offered “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 outlined that it recognizes “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 authorities in Hong Kong are not the only ones who recognize the benefits that the incorporation of staking within crypto investment products can bring. Last month, Robert Mitchnick, head of digital assets at the world’s largest asset manager, BlackRock, told the Digital Assets Summit in New York that Ether ETFs would benefit from the addition of staking.
Mitchnick suggested that the current inability to earn a staking yield within such products is a key limitation. He outlined that such a change is dependent upon relevant regulatory changes being implemented in the U.S. A more crypto-friendly climate in the U.S. since U.S. President Donald Trump took office has resulted in various lawsuits being dropped against companies like Coinbase related to the staking services that had been offered.
A number of U.S. Ether ETF issuers, including Franklin Templeton, Grayscale and Bitwise, have put forward proposals to the Securities and Exchange Commission (SEC) to have staking included in these products.
