Management Summary
- Purpose / Background: Under Pillar P of the ASPIRe roadmap, the SFC is relaxing restrictions to allow licensed corporations providing VA dealing services (VA brokers) to offer financing for VA dealing and participate in shared order books, while strengthening safeguards for client VA withdrawals.
- One-line conclusion: VA brokers may now offer margin financing for VA dealing using specific collateral (BTC/ETH) and access shared order books, provided they implement stringent risk controls, cybersecurity measures, and client disclosure protocols.
- Key Changes:
- Authorization for VA brokers to offer margin financing for VA dealing (initially limited to BTC/ETH).
- Requirement to apply a minimum 60% haircut on VA collateral.
- Integration of VA financing into existing Securities Margin Financing (SMF) Guidelines and collateral concentration controls.
- Permission for VA brokers to utilize "Shared Order Books" (global liquidity) subject to best execution and risk disclosure.
- Enhanced cybersecurity and operational requirements for VA withdrawal processes to prevent unauthorized transactions.
- Maintenance of a 100% haircut for capital calculation purposes under the FRR until a new consultation is finalized.
- Key Dates / Deadlines: Effective 11 February 2026.
- Applicability / Impact scope: Licensed corporations or registered institutions providing VA dealing services under an omnibus account arrangement with SFC-licensed VATP operators.
- Recommended management actions:
- Review and update margin lending policies to incorporate VA-specific risk assessment criteria (volatility, sector concentration, liquidity).
- Implement real-time monitoring systems for VA collateral volatility and automated margin call/trading suspension triggers.
- Update client disclosure documents and onboarding processes to reflect Shared Order Book risks and VA financing hazards.
- Conduct a gap analysis of current IT security and withdrawal authentication protocols against the new "heightened risk" standards.
- Brief Senior Management (MICs for Overall Management/Risk) on revised liability regarding VA credit risk and systemic volatility.
Detailed Summary
1) Document overview
The circular amends the regulatory framework for VA brokers, enabling the expansion of margin lending into the VA space, formalizing participation in shared liquidity pools, and mandating robust security for VA withdrawals.
2) Main requirements
- VA Financing: Limited to existing securities margin clients. Collateral is restricted to BTC and ETH with a minimum 60% haircut. Brokers must assess client financial capability using holistic criteria (quality, volatility, digital asset sector concentration).
- Shared Order Book: Brokers may use shared order books (integrating global liquidity) provided they fulfill best execution obligations and explicitly disclose risks related to overseas jurisdictions and settlement failure to retail clients.
- Client VA Safeguards: Brokers permitting withdrawals must implement robust systems to prevent fraudulent instructions, perform 24/7 incident monitoring, and collaborate with VATP operators on abnormal activity detection.
3) Key changes
- From Prohibition to Managed Access: Moves away from the absolute ban on financial accommodation for VA acquisition.
- Collateral Treatment: Introduces BTC/ETH as credit risk mitigation (with 60% haircut) alongside existing securities collateral.
- Regulatory Overlay: Existing SMF Guidelines are now explicitly extended to cover VA lending, including concentration controls and repledging prohibitions.
4) Important dates & transition
- Immediate Effect: 11 February 2026.
- Capital Treatment: 100% haircut for capital adequacy calculations (FRR) remains until a separate consultation on capital requirements concludes.
5) Impact and risks
- Credit Risk: High volatility and correlation between VA and traditional assets during market stress may exacerbate broker exposure.
- Operational/Cyber Risk: Withdrawal functionality increases the surface area for unauthorized system access; requires enhanced authentication.
- Compliance: Significant reporting and monitoring burden on RMs and MICs to ensure margin calls are timely and concentration limits are enforced.
6) Compliance action checklist
- [ ] Update internal Credit Policy to define "eligible VA collateral" and calculation methodologies.
- [ ] Configure real-time price monitoring and automated trading blocks for breaches of loan-to-value ratios.
- [ ] Review and enhance withdrawal security/MFA/system access controls.
- [ ] Draft client-facing risk disclosures regarding Shared Order Books.
- [ ] Perform "Ad-hoc" review of credit limits for clients utilizing VA financing.
7) Appendices/attachments summary
- Referenced Circular on Shared Liquidity (Ref: 25EC56): Provides the foundational authorization for VATP operators to integrate order books with global affiliates, which this circular leverages for broker access.