Restrictive OTC regulations for institutions amid Hong Kong ETF launch – BitGo APAC director

Hong Kong has emerged as a key participant within the race to turn out to be Asia’s premier crypto hub, because it launched the area’s first spot crypto ETFs on April 30 with a day-one influx of over $130 million throughout Bitcoin and Ethereum. To realize deeper perception into the implications of this milestone and Hong Kong’s evolving digital asset panorama, CryptoSlate spoke with HB Lim, Managing Director of APAC for BitGo.

Lim brings a wealth of regulatory and crypto trade expertise to the dialog. Earlier than becoming a member of BitGo, a number one institutional crypto custody supplier, he was a director at Abu Dhabi International Market, the place he helped craft its progressive crypto regulatory frameworks. Lim beforehand held roles on the Financial Authority of Singapore regulating monetary institutions.

On this unique interview, Lim shares his perspective on how Hong Kong’s spot ETF choices may influence market forces and investor participation within the area. He additionally assesses Hong Kong’s general digital asset regulatory framework and the way it compares to different contenders vying to be Asia’s crypto hub, like Singapore and the UAE.

Lim gives candid insights into areas the place Hong Kong’s crypto regulations might be enhanced, resembling creating licensing choices for impartial custodians and calibrating guidelines for institutional OTC buying and selling desks. He additionally discusses his outlook for digital belongings in Hong Kong and APAC and BitGo’s plans to help the area’s rising ecosystem within the coming years.

With Hong Kong’s spot ETFs set to launch on April 30, how do you anticipate it will influence the area’s crypto market dynamics and investor participation?

At the moment, the first markets for spot crypto ETFs are in North America and Europe. Which means that such ETFs aren’t obtainable for buying and selling throughout a lot of Asian buying and selling hours, which is incongruous with the 24/7 market that crypto is. As such, having spot crypto ETFs in Hong Kong gives buyers with extra full buying and selling hours to entry crypto. 

As well as, some buyers could choose to not commerce spot crypto ETFs listed in North America or Europe for causes resembling much less beneficial taxes or restrictions by their residence nation regulator. The Hong Kong spot crypto ETFs present an alternative choice for such buyers who could discover Hong Kong gives extra benefits with regard to taxes and regulatory entry.

The providing of spot crypto ETFs in HK will deepen liquidity in HK crypto markets and provides rise to a rising supporting ecosystem of crypto exchanges, crypto custodians, banks, brokers, {and professional} providers.

Given your regulatory background, how do you assess Hong Kong’s general digital asset regulatory framework? Is it placing the fitting steadiness between innovation and investor safety?

HK has developed an especially complete and sturdy digital asset regulatory framework, and needs to be lauded for that. Nonetheless, there are areas which might be enhanced, resembling the necessity to create a regulatory framework for impartial digital asset custodians to offer an extra possibility for custody, and calibrating HK’s proposed regulatory framework for the OTC buying and selling of digital belongings. 

At the moment, digital asset exchanges in HK are solely allowed to make use of digital asset custody providers offered by a subsidiary firm. Banks that want to present digital asset custody however outsource this service are solely allowed to make use of digital asset custody providers offered by a HK-licensed digital asset trade or one other HK-licensed financial institution. Digital asset exchanges and banks in HK are at present not allowed to make use of specialist third celebration impartial digital asset custodians, which limits choices available in the market. There may be at present additionally no licensing regime by the HK SFC or HKMA for impartial digital asset custodians in HK. 

A thriving web3 trade requires the help of specialist impartial digital asset custodians. Digital asset wallets are the gateway to web3, and correct custody and safety of digital belongings is important to constructing belief within the trade. As such, HK may benefit from additionally creating a regulatory framework for impartial digital asset custodians to be licensed, offering a complementary choice to digital asset custody in HK. 

On the OTC buying and selling entrance, HK has not too long ago issued a session paper proposing to control OTC buying and selling of digital belongings. The proposals seem relatively restrictive in that they suggest permitting OTC buying and selling desks to solely provide crypto-to-fiat buying and selling pairs, and restrict the crypto that may be traded to solely these accredited for buying and selling on licensed exchanges in HK. The proposals seem extra focused on the brick-and-mortar retailers in HK providing retail prospects the flexibility to purchase and promote crypto belongings, and the proposals seem much less suited to institutional OTC buying and selling desks that don’t cope with retail purchasers and which comply with sturdy compliance packages together with Know-Your-Buyer checks. The OTC buying and selling proposals may maybe profit from having a separate regime for institutional OTC buying and selling desks which acknowledges the decrease dangers such desks pose.

With Singapore and the UAE additionally vying to turn out to be Asia’s premier crypto hub, how do you assume Hong Kong’s spot ETF choices will bolster its aggressive place?

HK providing spot crypto ETFs will doubtless appeal to extra web3 corporations, buyers and expertise to sink roots in HK, resulting in a virtuous cycle of progress within the web3 ecosystem there.

What excites you most about the way forward for digital belongings in Hong Kong and the APAC area, and the way does BitGo plan to contribute to this evolution within the coming years?

Digital asset wallets are the gateway and basis of web3, and digital asset pockets and custody suppliers resembling BitGo are essential gamers in any web3 ecosystem. BitGo has been energetic within the APAC area for a few years, and we stay bullish on web3 adoption and progress in Hong Kong and the remainder of APAC. As a agency which locations safety and regulatory compliance first, we sit up for persevering with to contribute to the web3 ecosystem in HK and the remainder of APAC by means of our thought management, and supporting corporations with our secure and trusted digital asset wallets and prime brokerage providers.

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