The Securities and Futures Commission (SFC) of Hong Kong has unveiled new legal guidelines with which a licensed Virtual Asset Trading Platforms (VATPs) and Exchange-Trade Funds (ETFs) allow to offer strike services, according to a statement of 7 April.
The locking up of tokens with deportation to validate transactions in exchange for rewards is central in blockchain networks that are carried out on a proof-of-stake (POS) system such as Ethereum. This process has attracted institutional and retail investors, so that they can achieve yields on their used tokens.
In commentary on the update, SFC CEO Julia Leung said that the decision reflects the dedication of the regulator to support innovation without endangering the protection of investors. She added that the safety of the client assets must remain the core of every new crypto service introduced under the watch of the SFC.
VATP’s procrastination rule
According to the new rules, BATPs must implement strict internal checks to prevent errors and reduce risks that are linked to the expansion.
This includes procedures for managing operational risks, resolving conflicts of interest and guaranteeing transparency when dealing with client activa.
It is crucial that platforms must maintain control over all the tools used to access or withdraw from client activa. The use of external preservators for virtual assets from Client is therefore not permitted.
However, if setting services includes outsourcing part of the process, BATPs must perform a good due diligence and secure prior approval of the SFC.
In the meantime, the disclosure requirements have also been tightened. Platforms must provide customers with complete information about the deployment service, with supported assets, risk factors, locking periods, reimbursements, non-substantial procedures and other contractual conditions.
The goal is to ensure that users understand the scope of the service before they participate.
Where third -party involvement is necessary, such as outsourced deferment operations, Batps must perform the necessary diligence and obtain legal approval before they continue.
ETFs expand
For ETFs, the SFC will make it possible for BTWS or authorized institutions (AIS) to licensees, as long as fund managers follow strict conditions.
These include ensuring that it is in accordance with the objectives of the fund, the effective management of risks and continuous supervision of service providers.
In addition, fund documents must announce the share of virtual assets used for deporting, potential returns, associated risks and costs.
If setting up activities considerably changes the risk profile or the investment strategy of a fund, managers must inform investors in advance and determine whether the shareholders’ approval is required.
