In an announcement on September 30, 2024, Taiwan’s Financial Supervisory Commission (FSC) gave the green lithe to offshore cryptocurrency funds (ETFs) for professional investors.
Offshore digital asset ETFs approved for professional investors
According to announcementTaiwan’s FSC allows institutional investors to invest in offshore digital asset ETFs through a re-entrustment process. The announcement noted:
Professional investors include professional institutional investors, legal entities engaged in high net worth investments, high net worth clients, legal entities or funds owned by professional investors, and natural persons belonging to professional investors.
For the uninitiated, re-entrustment is a process in which one party delegates investment management to another, who then transfers that responsibility to a third party. This enables institutions to invest in specialized assets – including offshore cryptocurrency ETFs – through trusted intermediaries, ensuring appropriate oversight and expertise when accessing global markets.
In the Taiwan context, Taiwanese institutions can currently delegate investment management to local financial institutions. They can then appoint an offshore asset manager to handle investments in these cryptocurrency ETFs. This process facilitates seamless access to global cryptocurrency markets while ensuring compliance with local regulatory oversight and risk management practices.
This decision follows a period of discussion with the Securities Business Association (SBA) regarding the risks associated with investing in cryptocurrency ETFs. The financial supervision authority has granted institutional clients permission to cooperate with foreign cryptocurrency ETF funds.
However, before securities firms or investors can invest in foreign cryptocurrency ETFs, several conditions must be met.
First, they must develop a “suitability system” approved by the board. Additionally, they must assess a client’s level of knowledge regarding virtual assets before making or facilitating an investment in cryptocurrency ETFs.
Additionally, customers wishing to invest in cryptocurrency ETFs via re-custody must sign a risk warning prior to their first purchase. A securities dealer should also provide information about commodities related to ETF-related virtual assets prior to any purchase by the customer.
The FSC stressed that it will closely monitor securities firms engaging in ETF investment activities, ensuring their compliance with regulations, promoting investor rights and enhancing market competitiveness.
A contrasting approach to cryptocurrencies in Asia
While Taiwan’s decision reflects growing interest in digital assets, other parts of Asia remain hesitant to adopt this emerging asset class due to its perceived volatility.
For example, recently the Korea Institute of Finance (KIF). lifted up concerns about the potential adverse impact of cash ETFs on the South Korean economy.
The Japanese financial regulator did the same accented need for “careful consideration” in approving cryptocurrency ETFs. Interestingly, the latest study found that Japanese institutional investors are becoming more open to digital assets.
In turn, Hong Kong’s financial regulator – the Securities and Futures Commission of Hong Kong (SFC) – approved first Bitcoin (BTC) ETF spot in April 2024. At press time, BTC was trading at $63,984, down 2.7% in the last 24 hours.
Featured image from Unsplash.com, chart from TradingView.com