Hong Kong FSTB and SFC Launch Joint Consultation on Legislative Proposals to Regulate Virtual Asset Dealers and Custodians
On 27 June 2025, the Hong Kong Financial Services and the Treasury Bureau (FSTB) and the Hong Kong Securities and Futures Commission (HK SFC) jointly published two consultation papers proposing statutory licensing regimes for virtual asset dealers and custodians, marking a major regulatory development in the SAR’s digital asset agenda. These consultations follow the release of Policy Statement 2.0 on the Development of Digital Assets in Hong Kong and support the “Access” pillar of the SFC’s ASPIRe roadmap.
- The two consultation papers are titled “Public Consultation on Legislative Proposal to Regulate Dealing in Virtual Assets” and “Public Consultation on Legislative Proposal to Regulate Virtual Asset Custodian Services.”
- The proposals aim to establish a statutory licensing framework for entities engaging in virtual asset dealing and custodial services, aligned with the “same business, same risks, same rules” principle.
- The HK SFC will serve as the regulatory and licensing authority, responsible for supervision, AML/CFT compliance, asset safeguarding, and investor protection standards.
- These regimes are a component of Hong Kong’s broader digital asset regulatory vision articulated in Policy Statement 2.0, released on 26 June 2025.
- The frameworks are designed to close regulatory gaps in custody and trading, bringing these services under consistent oversight akin to traditional financial markets.
- HK SFC CEO Julia Leung stated the reforms would “complete a digital asset ecosystem that is both safe and vibrant for institutional and retail investors.”
- Financial Services Secretary Christopher Hui confirmed that the regimes would form the statutory bedrock of investor and customer protection in Hong Kong’s crypto markets.
- The consultations invite comments from intermediaries, fintech firms, institutional investors, global exchanges, and legal and compliance professionals until 29 August 2025.
- Legislative drafting is expected to follow, with amendments likely to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) and/or the Securities and Futures Ordinance (Cap. 571) to implement the regimes.
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Crypto Asset Exchange-Traded Products – Division of Corporation Finance, July 1, 2025: US SEC Staff Clarifies Disclosure Expectations for Crypto ETP Issuers
On 1 July 2025, the United States Securities and Exchange Commission’s Division of Corporation Finance issued a staff statement titled Crypto Asset Exchange-Traded Products – Division of Corporation Finance. The statement offers non-binding guidance on disclosures required under the United States Securities Act of 1933 and the United States Securities Exchange Act of 1934 for issuers of crypto asset exchange-traded products (ETPs). It reflects the Division’s observations from recent ETP registration filings and is intended for sponsors, legal advisors, compliance teams, and product developers. The staff clarified that the statement is not a rule or regulation and imposes no new legal obligations.
- Crypto ETP issuers must include initial offering price and statutory underwriter details (typically the initial authorised participant) on the cover page of the prospectus.
- The prospectus summary must be in plain English, describing the fund’s objective, underlying crypto assets, restrictions on use, and handling of forks/airdrops, and must note that per-share holdings decrease over time due to fees.
- Risk factors must address material, issuer-specific risks such as price volatility, private key theft, market manipulation, cybersecurity threats, validator incentives, and reliance on third-party service providers.
- The description of business should explain how assets are minted, staked, burned, validated, and the nature of associated crypto networks, using accessible language.
- Where applicable, index-tracking ETPs must disclose constituent platforms, index methodology, selection criteria, oversight committees, and any discretion retained by the sponsor to change the benchmark.
- Crypto ETP issuers must explain the NAV methodology, including any differences from GAAP, and disclose third-party pricing or licensing agreements used for valuation.
- Crypto ETP issuers must disclose key service providers, including sponsor, custodian, and APs, the storage method for cryptoassets (cold/warm/hot), insurance coverage, and custodian access to private keys.
- Crypto ETP issuers must detail the sponsor fee structure, whether it covers operational costs, any limits or caps on expenses, and how crypto assets are used to pay such fees.
- The description of securities must include voting rights (or lack thereof), conditions for changes to those rights, and amendment or termination processes.
- The plan of distribution must cover creation/redemption mechanisms, AP involvement, onchain/offchain settlement, and how market volatility or outages may suspend operations.
- Crypto ETP issuers should identify sponsor executives involved in policymaking, disclose their experience, and outline fee arrangements where executive compensation rules don’t apply.
- Clear disclosure is expected for conflicts of interest, including insider holdings, exposure to crypto markets, codes of conduct, and sponsor experience with other ETPs.
- Where structured as series trusts or partnerships, issuers must file separate financial statements for each series, assessing materiality individually under Regulation S-K and Regulation S-X.
- Crypto ETP issuers must ensure accurate EDGAR tagging of filing fee tables, using the correct “Type of payment” (2) and “Security type” (“Exchange-Traded Vehicle Securities”) under Rules 456(d) and 457(u) to avoid submission errors or delays in Rule 424(i) filings.
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Hong Kong SFC Convenes Second Digital Asset Consultative Panel Meeting to Advance ASPIRe Roadmap Initiatives
On 7 July 2025, the Hong Kong Securities and Futures Commission (HK SFC) convened the second meeting of its Digital Asset Consultative Panel (DACP) to advance discussions with licensed virtual asset trading platforms on policy development, regulatory reform, and market innovation. The DACP plays a central role in supporting the implementation of the ASPIRe roadmap, reinforcing the Hong Kong SAR Government’s commitment to developing a globally competitive and well-regulated digital asset ecosystem.
- The DACP meeting focused on strategic priorities under the ASPIRe roadmap, including enhancing access (Pillar A) through streamlined licensing and onboarding of qualified participants.
- Participants discussed the expansion of safe and transparent product offerings (Pillar P), aligning with the regulatory goals of market growth and investor confidence.
- A central item was the ongoing public consultations, launched on 27 June 2025, concerning legislative proposals to license and regulate virtual asset dealers and custodians.
- The DACP provides a structured forum for the HK SFC to collaborate with licensed Virtual Asset Trading Platforms (VATPs) on supervisory expectations and innovation strategy.
- Dr Eric Yip, Executive Director of Intermediaries at the HK SFC, described the meeting as “constructive and insightful,” reaffirming the role of licensed platforms in building a competitive ecosystem.
- The panel acknowledged the global regulatory landscape and addressed the balance between investor protection and enabling innovative business models in digital asset markets.
- The DACP’s current format reflects a realignment with the Policy Statement 2.0, issued on 26 June 2025, which broadened the consultative scope from just “virtual assets” to include all tokenised financial instruments.
- The renaming from the former “Virtual Asset Consultative Panel” to “Digital Asset Consultative Panel” signals the HK SFC’s forward-looking approach to tokenisation and digital finance.
- The DACP is structurally aligned with Pillar Re (Relationships) of the ASPIRe roadmap, promoting regulator-industry engagement as a foundation for long-term digital asset policy coherence.
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US SEC Extends Review Period for Proposed Listing of Canary Staked TRX ETF on Cboe BZX
On 9 July 2025, the United States Securities and Exchange Commission (US SEC) published Notice of Designation of a Longer Period, designating a longer review period for the proposed rule change to list and trade shares of the Canary Staked TRX ETF on Cboe BZX Exchange, Inc., under BZX Rule 14.11(e)(4), governing Commodity-Based Trust Shares. The decision was published in Release No. 34-103405 (File No. SR-CboeBZX-2025-069).
- The proposed ETF, Canary Staked TRX ETF, would provide exposure to staked TRX (Tron tokens) and potentially include staking rewards in its valuation structure.
- The rule change was filed under Section 19(b)(1) of the United States Securities Exchange Act of 1934 and Rule 19b-4, and published in the Federal Register on 29 May 2025 (90 FR 22778).
- The US SEC invoked Section 19(b)(2) to extend the review period, giving itself until 27 August 2025 to approve, disapprove, or institute further proceedings.
- The order states that the Commission requires additional time to evaluate the proposed rule change and associated regulatory concerns.
- The ETF would be listed as a Commodity-Based Trust Share, with net asset value (NAV) calculated based on the value of staked TRX, though specifics about the custodian or staking mechanism are not detailed in the current notice.
- No public comments have been received yet, but stakeholders may continue to submit comments referencing File No. SR-CboeBZX-2025-069 via the US SEC’s official portal.
- The extension signals the US SEC’s intention to scrutinise the structure of staked-asset ETFs, particularly regarding custodial risks, valuation transparency, and regulatory classification under the Exchange Act.
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US SEC Reviews Nasdaq Proposal to Permit In-Kind Creations and Redemptions for iShares Bitcoin Trust
On 9 July 2025, the United States Securities and Exchange Commission (US SEC) published a Notice of Filing of a Proposed Rule Change, as Modified by Amendment No. 2 [Release No. 34-103406; File No. SR-NASDAQ-2025-008] regarding a proposed rule change by The Nasdaq Stock Market LLC, as modified by Amendment No. 2, to permit in-kind creations and redemptions for shares of the iShares Bitcoin Trust, currently listed and traded under Nasdaq Rule 5711(d).
- The proposal seeks to amend the Trust’s operations to allow in-kind transfer of bitcoin, enabling authorised participants to deliver or receive bitcoin directly, rather than only through cash transactions.
- The original proposal was filed on 24 January 2025, replaced by Amendment No. 1 on 4 February 2025, and later replaced entirely by Amendment No. 2 on 1 July 2025.
- Shares of the Trust are listed under Rule 5711(d) as Commodity-Based Trust Shares; it is sponsored by iShares Delaware Trust Sponsor LLC, a BlackRock subsidiary.
- Coinbase Custody Trust Company, LLC serves as bitcoin custodian; Coinbase, Inc. is the Prime Execution Agent; BNY Mellon holds cash assets and acts as administrator.
- Bitcoin in the Trust’s Custody Account will be stored offline in cold storage, with temporary holdings in a Trading Account for transaction settlement.
- Order cut-off times differ: for cash orders, 6:00 p.m. ET (day before trade date); for in-kind orders, 3:59 p.m. ET (on trade date).
- In-kind creations involve bitcoin deposits into the Trading Account in exchange for Trust shares; redemptions reverse this process.
- If bitcoin is not delivered on time, participants may cancel, delay, or convert the order into a cash settlement with cost adjustment.
- Cash-based orders are executed via Coinbase Prime or counterparties; Coinbase Credit, Inc. may provide credit facilities to bridge trade settlement.
- The amendment updates rule text to reflect flexibility in redemptions and creations “in exchange for an amount of bitcoin and/or cash.”
- Nasdaq argues that this change aligns with Section 6(b)(5) of the Exchange Act by promoting fairness, efficiency, and investor protection.
- The US SEC is accepting public comments on the proposal, which must be submitted within 21 days of publication in the Federal Register, referencing File No. SR-NASDAQ-2025-008.
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US SEC Commissioner Hester M. Peirce Issues Statement: “Enchanting, but Not Magical: A Statement on the Tokenisation of Securities” Stresses Legal Compliance for Tokenised Assets
On 9 July 2025, United States Securities and Exchange Commission (US SEC) Commissioner Hester M. Peirce released a public statement titled “Enchanting, but Not Magical: A Statement on the Tokenisation of Securities,” addressing the regulatory treatment of tokenised securities and reiterating that technological innovation does not nullify existing legal obligations under United States federal securities law.
- Commissioner Peirce affirmed that tokenised securities remain subject to US SEC regulation, regardless of whether the tokenisation is conducted by the original issuer or a third party.
- She clarified that blockchain technology does not change the legal character of a security, and that any token representing a security must comply with all applicable federal securities laws.
- She warned that third-party tokenisation introduces counterparty risk, especially when a tokenised product is backed by an off-chain asset held in custody by another party.
- Crypto ETP issuers and distributors of tokenised securities are expected to comply with disclosure obligations, including those outlined in the US SEC Division of Corporation Finance’s 10 April 2025 staff statement on Offerings and Registrations of Securities in the Crypto Asset Markets.
- Commissioner Peirce emphasised that certain token structures may amount to “receipts for securities,” thereby creating a new security or constituting security-based swaps, which cannot be traded off-exchange by retail investors.
- She urged market participants to engage with the US SEC to clarify their obligations, seek interpretive guidance, and propose changes or exemptions where appropriate.
- The statement reiterates the US SEC’s willingness to modernise existing rules and develop new exemptions or safe harbours, but stresses that all market activity must begin with compliance with current law.
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