Hong Kong Allows Crypto Platforms To Offer Staking Services

The Securities and Futures Commission (SFC) of Hong Kong has introduced new guidelines that permit licensed crypto platforms and funds to offer staking services. This move is part of the regulator's broader strategy to foster the development of the region's digital assets ecosystem.

The new rules, announced on Monday, provide regulatory guidance for licensed Virtual Asset Trading Platforms (VATPs) and SFC-authorized funds exposed to Virtual Assets (VA Funds) that wish to offer staking services. The SFC recognizes the potential benefits of staking in enhancing the security of blockchain networks and allowing investors to earn yields on virtual assets within a regulated market environment.

SFC’s Chief Executive Officer, Julia Leung, emphasized the importance of broadening the suite of regulated services and products to sustain the healthy advancement of Hong Kong’s virtual asset ecosystem. She highlighted that this expansion must occur within a regulated environment where the safety of client virtual assets remains a top priority.

These guidelines are one of the five pillars in the SFC’s “ASPIRe” roadmap, announced in February, aimed at developing Hong Kong’s virtual asset ecosystem. The new rules allow crypto platforms to expand their product and service offerings, provided they meet the requirements set by the SFC, including internal control, proper disclosure of information, and due diligence regarding blockchain protocol selection and third-party service providers.

Crypto exchanges and funds seeking to offer staking services must obtain written approval from the SFC and ensure they maintain possession or control of all staked assets. Delegating custody to third parties is prohibited. Additionally, platforms must have policies to safeguard clients’ crypto assets and report their staking activities periodically to the SFC.

The rules mandate that VATPs disclose all relevant information to their customers, including risks such as slashing, lock-up, technical errors, and hacking, as well as fees, charges, minimum lock-up periods, unstaking process details, measures for outages and business resumption, and custodial arrangements. Platforms must also perform due diligence when including a blockchain protocol and conduct ongoing monitoring when outsourcing to third-party service providers.

SFC-approved crypto funds with more than 10% of their net asset value invested directly or indirectly in virtual assets can engage in staking if it aligns with the VA fund’s objectives and strategy. These funds can only invest directly or indirectly in crypto through licensed VATPs or authorized financial institutions and should not have leveraged exposure to digital assets at the fund level.

The management company must implement robust internal controls to manage potential risks and conflicts of interest that may arise, perform due diligence, and continuously monitor the service providers used for these activities. The SFC noted that it may introduce additional requirements or conditions as deemed necessary or appropriate in the discharge of its functions.