Hong Kong Sets Out Staking Guidance for VATPs and Authorised Virtual Assets Funds
On 7 April 2025, the Securities and Futures Commission (SFC) issued its first regulatory circular on the provision of staking services by SFC-licensed virtual asset trading platforms (VATPs), "Circular on staking services provided by VATPs". This marked a significant shift, as staking had previously not been allowed under the "Guidelines for Virtual Asset Trading Platform Operators" (VATP Operators Guidelines) dated 1 June 2023.
On the same day, the SFC revised its circular titled "Circular on SFC-authorised funds with exposure to virtual assets" to facilitate SFC-authorised funds for public offerings in Hong Kong with more than 10% of their net asset value in virtual assets (VAs) (SFC-authorised VA Fund) in their engagement in staking.
In the regulatory guidance, the SFC acknowledges the potential benefits of staking, including enhancing blockchain network security and enabling investors to earn yields on VAs within a regulated market environment. The new guidance aligns with the SFC’s "ASPIRe" roadmap, which aims to expand product and service offerings as part of Hong Kong’s VA ecosystem development (see our previous VA Regulatory Alert on “ASPIRe” roadmap here).
This also paved the way for the timely launch of a staking-enabled Ether Spot ETF, with the first of such ETFs approved by the SFC on 11 April and effective 25 April. This development comes against the backdrop of proposals submitted by the New York Stock Exchange and Cboe BZX Exchange to the US Securities and Exchange Commission in March, seeking permission for Ether ETFs to offer staking rewards. By enabling one of the first Ethereum staking-enabled ETFs globally, Hong Kong's regulator's ambition to position the city as a leader in the global VA space is highlighted. This also opens up the possibility of Hong Kong fund managers launching VA spot ETFs for other VAs with proof-of-stake protocols, including Solana and Cardano (among others).
Staking and Staking Services
In the SFC's circular, "staking" (質押) refers to the process of committing or locking VAs for a validator (the operator of one or more nodes) to participate in a blockchain protocol’s validation process based on a proof-of-stake consensus mechanism, with returns generated and distributed for that participation. Staking services are any arrangements which involve staking (Staking Services).
Regulatory Requirements for VATPs to Provide Staking Services
VATPs intending to provide Staking Services should obtain the SFC's prior written approval. The SFC will impose specific conditions (Terms and Conditions for Providing Staking Services) on a VATP’s licence before it may provide Staking Services.
The Terms and Conditions for Providing Staking Services (a summary of which is detailed in the table below) emphasises the following key regulatory requirements:
(1) Internal controls: A VATP should maintain effective internal controls to ensure the “staked” client VAs are adequately safeguarded, manage operational risks and address conflicts of interest;
(2) Disclosure of information: A VATP should disclose information about its Staking Services, including the specific VAs for which the VATP provides Staking Services, any third parties involved, fees and charges, minimum lock-up periods, custodial arrangements and the risks that clients may be exposed to in using the Staking Services; and
(3) Blockchain protocol selection and third-party service providers: A VATP should act with due skill, care and diligence when including a blockchain protocol for providing Staking Services, perform proper due diligence and conduct ongoing monitoring of the third party (if outsourcing to a third-party service provider is involved).
SFC-authorised VA Funds with staking features
In the revised circular, SFC-authorised VA Funds are permitted to engage in staking and other VS-related activities conducted through VATPs, or authorised financial institutions, subject to the adherence of the following general guiding principles:
- the VA-related activities should be consistent with the fund's investment objective and strategy;
- robust internal controls should be implemented to monitor and manage material risk and conflicts of interest which may arise from the VA-related activities, as well as establish appropriate custody arrangements;
- due diligence and on-going monitoring should be performed on the VATPs or the authorised institutions, the Staking Services, the counterparties and service providers;
- the fund's offering documents should show the amount of VAs that may be used for VA-related activities, and their key features and risks;
- prior notice should be provided to investors, or prior investor approval or amendment to constitutive documents should be required, if such VA-related activities will result in a material change to the fund's existing investment objective and strategy, or risk profile; and
- the interim and annual reports should disclose the total amount of VA holdings committed to each type of VA-related activities as a proportion of the fund’s NAV, the amount of revenue, as well as the direct and indirect expenses incurred from each of such activities.
SFC-authorised VA Funds intending to engage in staking and other VA-related activities should engage in prior consultation with the SFC and obtain its approval.
How Howse Williams Regulatory Team Can Help
At Howse Williams, our dedicated Regulatory team specialises in providing comprehensive legal services related to VAs in Hong Kong. Our expertise includes a deep understanding of both current and developing regulatory frameworks and significant experience in both contentious and non-contentious matters. In particular, the team has assisted multiple clients in "upgrading" their SFC licences in order to engage in VA-related activities, including assisting a fund manager with their licence upgrade to manage VA spot ETFs. We invite you to connect with us to discuss how we can assist you in leveraging these developments to achieve your business goals in the VA space.
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