Hong Kong’s Securities and Futures Fee (SFC) has unveiled new regulatory steerage permitting licensed Digital Asset Buying and selling Platforms (VATPs) and exchange-traded funds (ETFs) to supply staking providers, in line with an April 7 assertion.

Locking up tokens with staking to validate transactions in alternate for rewards is central to blockchain networks working on a proof-of-stake (PoS) system like Ethereum. This course of has attracted institutional and retail traders, permitting them to earn yields on their staked tokens.

Commenting on the replace, SFC CEO Julia Leung mentioned the choice displays the regulator’s dedication to supporting innovation with out compromising investor safety. She added that shopper asset security should stay on the core of any new crypto service launched underneath the SFC’s watch.

VATP’s staking rule

Beneath the brand new guidelines, VATPs should implement strict inner controls to keep away from errors and scale back dangers linked to staking.

This contains procedures for managing operational dangers, resolving conflicts of curiosity, and making certain transparency in dealing with shopper property.

Crucially, platforms should retain management over all instruments used to entry or withdraw shopper property. So, utilizing third-party custodians for shopper digital property is not going to be allowed.

Nonetheless, if staking providers contain outsourcing any a part of the method, VATPs should conduct correct due diligence and safe prior approval from the SFC.

In the meantime, disclosure necessities have additionally been tightened. Platforms should present shoppers with full data on the staking service, masking supported property, threat elements, lock-up intervals, charges, unstaking procedures, and different contractual phrases.

The purpose is to make sure customers perceive the scope of the service earlier than collaborating.

The place third-party involvement is critical, equivalent to in outsourced staking operations, VATPs should perform due diligence and acquire regulatory approval earlier than continuing.

ETFs staking

For ETFs, the SFC will enable staking via licensed VATPs or approved establishments (AIs) so long as fund managers observe strict situations.

These embody making certain that staking aligns with the fund’s goals, managing dangers successfully, and repeatedly overseeing service suppliers.

Moreover, fund paperwork should disclose the proportion of digital property used for staking, potential returns, related dangers, and bills.

If staking actions considerably alter a fund’s threat profile or funding technique, managers should notify traders upfront and decide if shareholder approval is required.