Hong Kong Authorizes Staking Services for Crypto Firms and ETFs

Hong Kong’s Securities and Futures Commission (SFC) has introduced new guidance that allows licensed Virtual Asset Trading Platforms (VATPs) and exchange-traded funds (ETFs) to provide staking services. Under these updated measures, VATPs offering staking and associated DeFi-like yields must follow strict rules to protect client assets and ensure transparent operations. The move reflects the SFC’s broader commitment to fostering crypto innovation while prioritizing investor safety.

Key Highlights

1. Authorization for Staking
   • Licensed VATPs can now offer staking services on proof-of-stake (PoS) networks (e.g., Ethereum) under newly released SFC guidelines.
2. Emphasis on Investor Protection
   • SFC CEO Julia Leung stressed that client asset safety remains paramount and should be foundational to any new crypto service.
3. Mandatory Internal Controls
   • VATPs must maintain rigorous internal governance to minimize operational risks. This entails standard procedures for conflict resolution, error management, and asset transparency.
4. Custody of Client Assets
   • Platforms cannot rely on third-party custodians for tokens. They must directly hold any keys or assets used for staking.
5. Outsourcing Conditions
   • In cases where VATPs outsource staking processes, the SFC requires robust due diligence and prior approval for any third-party involvement.
6. Disclosure Requirements
   • Platforms must fully disclose terms, fees, lock-up periods, and potential risks to users before enabling staking, ensuring participants grasp the service’s scope.
7. Staking for ETFs
   • Authorized ETFs can stake via licensed VATPs or authorized institutions if consistent with their investment goals. Managers must manage associated risks meticulously and keep investors informed about staking proportions and returns.
8. Advance Notifications
   • Fund managers must alert investors before any changes that could alter a fund’s risk profile or strategy, determining if shareholder approval is required in such cases.

By clarifying these rules, Hong Kong aims to support innovation in crypto finance while reducing risks tied to staking. VATPs and fund managers alike must abide by the SFC’s strict guidelines to safeguard investors and preserve market integrity in this expanding digital asset landscape.