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The Hong Kong Securities & Futures Professionals Association (HKSFPA) has advocated for the establishment of a self-regulatory committee within the city’s crypto firms to enhance compliance monitoring. The HKSFPA believes that many economically developed regions in the world have established semi-official industry self-regulatory institutions to focus on industry development, and Hong Kong should follow suit. The recommendation letter from the HKSFPA highlighted the absence of an overarching organization to foster the development of Hong Kong’s financial market industry and criticized the current regulatory landscape for being overly focused on supervision without adequate mechanisms for industry-wide coordination. The proposal suggests that the Securities & Futures Commission (SFC) delegate licensing powers to industry players, while retaining supervision over market conduct.

In a bid to maintain Hong Kong’s competitiveness in the global securities market and solidify its position as an international financial center, the HKSFPA recommends the establishment of a self-regulatory institution comprising representatives from the futures, asset management, and virtual asset industries. The goal is to delegate licensing authority solely to the securities industry, while the SFC retains supervision over market conduct. This proposal aligns with the HKSFPA’s previous recommendation last August, which emphasized the importance of balancing supervision and development in the virtual assets industry to prevent excessive regulation. The efficacy of self-regulation in maintaining a balanced risk-reward dynamic is a subject of debate, with recent developments in Lithuania serving as an example of tightening regulatory frameworks in response to compliance failures and embezzlement in the crypto sector.

The Hong Kong Securities and Futures Commission (SFC) approved the first batch of spot Bitcoin ETFs on April 15, a move that has been met with praise from many in the crypto community. Following this approval, the Hong Kong Stock Exchange (HKEX) will finalize listing procedures and other arrangements in approximately two weeks. The approved spot Bitcoin and Ether ETFs allow new ETF shares to be issued using BTC and ETH, marking a departure from the cash-create redemption model. Despite the approval, some express skepticism about the success of the ETFs within the region, with concerns raised about Mainland China investors being ineligible to buy Hong Kong-listed spot Bitcoin and Ether ETFs due to restrictions on buying virtual assets.

The crypto industry in Hong Kong has shown signs of growth and acceptance, with the Securities and Futures Commission exhibiting greater tolerance towards virtual asset firms. The recent approvals of spot Bitcoin and Ethereum ETFs, as well as the issuance of official virtual asset licenses to crypto exchanges such as Hashkey and OSL, signal a relatively accommodating stance towards the industry. However, the need for a self-regulatory committee to enhance compliance monitoring and industry-wide coordination highlights the challenges faced by Hong Kong’s financial market industry. The HKSFPA’s recommendations aim to address these challenges and foster further development in the virtual assets industry, striking a balance between supervision and development.

As Hong Kong moves towards approving spot Bitcoin ETFs and enhances its regulatory framework for crypto firms, the industry is set to undergo significant changes. With the recent bitcoin halving limiting the daily production of BTC by miners and the increasing demand for crypto assets through ETFs, there is a potential for a supply shock in the market. The approval of spot Bitcoin and Ether ETFs in Hong Kong opens up new opportunities for investors and further establishes the city as an international financial center. As the industry continues to evolve, stakeholders will need to adapt to changing regulatory landscapes and market dynamics to ensure continued growth and competitiveness in the global securities market.

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