Hong Kong’s securities regulator, the Securities Futures Commission (SFC), has laid out new guidance to enable approved crypto exchanges and funds to provide staking services within the city.
Staking gives crypto owners a way to make their digital assets work and earn passive income without selling them. Staking is essential for proof of stock (POS) networks because it offers security and immutability.
In a press release Monday, the Securities and Futures Commission (SFC) recognizes the dual role staking can play, strengthening the security of blockchain networks and providing investors with regulated yield opportunities.
“Expanding our regulated suite of services and products is critical to maintaining healthy progress in Hong Kong’s virtual asset ecosystem,” said Julia Leong, CEO of SFC. “However, we need to expand in a regulated environment where client virtual assets are at the forefront and the center.”
In a circular explaining the rules regarding staking, the SFC said that virtual asset trading platform (VATP), which regulators call license exchanges, should maintain full control of client assets and explicitly prohibit outsourcing staking to third parties.
A platform is also needed to transparently disclose all the risks involved, such as potential vulnerabilities such as blockchain errors, hacking, or inactivation of validators.
According to the rules, VATP must clearly inform clients of the processes involved, fees, minimum lockup periods, and business continuity arrangements during suspension.
On the other hand, licensed virtual asset funds are mandated to develop interests only through licensed platforms or licensed institutions, and have mandatory caps to manage liquidity risk, further highlighting the regulator’s prudent yet supportive approach.
This contrasts with Singapore, a rival financial centre in Hong Kong in 2023, and cites the need for “investment protection” in 2023.
The Securities and Exchange Commission (SEC) continues to restrict staking through enforcement actions, but faces growing calls from a bipartisan senator group to ease that stance.
Meanwhile, several states, including Illinois, recently dropped staking lawsuits against Coinbase, which were first attacked in multiple lawsuits in 2023.
