Regulatory Update: SFC Allows Licensed Virtual Asset Trading Platforms and ETFs to Offer Staking Services
The Hong Kong Securities and Futures Commission (SFC) has issued new guidance allowing licensed Virtual Asset Trading Platforms (VATPs) and exchange-traded funds (ETFs) to offer staking services, as announced in an April 7 statement.
Background on Staking
Staking is a process where users lock up tokens with a blockchain network to validate transactions and earn rewards in exchange. This process is central to blockchain networks running on a proof-of-stake (PoS) system, such as Ethereum. Staking has attracted both institutional and retail investors, allowing them to earn yields on their staked tokens.
SFC’s Stance on Staking
Commenting on the update, SFC CEO Julia Leung stated that the decision reflects the regulator’s commitment to supporting innovation while maintaining investor protection. She emphasized that client asset safety must remain at the core of any new crypto service introduced under the SFC’s watch.
Regulatory Requirements for VATPs
Under the new rules, VATPs must implement strict internal controls to mitigate risks associated with staking. This includes:
- Procedures for managing operational risks
- Resolving conflicts of interest
- Ensuring transparency in handling client assets
Additionally, VATPs must retain control over all tools used to access or withdraw client assets, precluding the use of third-party custodians for client virtual assets. However, if staking services involve outsourcing any part of the process, VATPs must conduct proper due diligence and secure prior approval from the SFC.
Disclosure requirements have also been tightened, with platforms required to provide clients with complete information on the staking service, including:
- Supported assets
- Risk factors
- Lock-up periods
- Fees
- Unstaking procedures
- Other contractual terms
The goal is to ensure users understand the scope of the service before participating. In cases where third-party involvement is necessary, VATPs must carry out due diligence and obtain regulatory approval before proceeding.
ETFs Staking
The SFC will allow staking through licensed VATPs or authorized institutions (AIs) as long as fund managers follow strict conditions, including:
- Ensuring that staking aligns with the fund’s objectives
- Managing risks effectively
- Continuously overseeing service providers
Additionally, fund documents must disclose the proportion of virtual assets used for staking, potential returns, associated risks, and expenses. If staking activities significantly alter a fund’s risk profile or investment strategy, managers must notify investors in advance and determine if shareholder approval is required.
Conclusion
The new guidelines aim to support innovation in the crypto market while maintaining investor protection. By implementing strict controls and disclosure requirements, VATPs and ETFs can offer staking services to their clients while ensuring a safe and transparent environment.
FAQs
Q: What is staking?
A: Staking is a process where users lock up tokens with a blockchain network to validate transactions and earn rewards in exchange.
Q: What are the new guidelines for VATPs offering staking services?
A: VATPs must implement strict internal controls, retain control over client assets, and conduct due diligence on third-party involvement. Disclosure requirements have also been tightened.
Q: What are the requirements for ETFs offering staking services?
A: ETFs must ensure that staking aligns with the fund’s objectives, manage risks effectively, and continuously oversee service providers. Fund documents must disclose relevant information, and managers must notify investors of significant changes to the fund’s risk profile or investment strategy.
