Regulator’s Tokenization & Custody Guidance for Hong Kong Institutions
The Hong Kong Monetary Authority (HKMA) recently issued letters to authorized institutions (AIs) regarding the tokenization and custody of digital assets. In one letter, the HKMA outlined standards for the provision of custody services for customer assets, based on international practices. These standards apply whether AIs offer standalone services or acquire assets through other activities. AIs are required to discuss and demonstrate to the HKMA that they meet these standards.
The letter includes an annex that presents standards in eight categories. These standards are quite broad and general, such as requiring senior management and staff involved in custodial activities to possess the necessary knowledge and expertise. The topics covered in the standards include governance and risk management, asset segregation, outsourcing, disclosure, and anti-money laundering and counter-financing of terrorism.
Another letter addressed the sale and distribution of tokenized products that are not regulated under the Securities and Futures Ordinance or subject to the Securities and Futures Commission’s requirements. It emphasized that the same supervisory requirements and consumer protection measures for traditional products also apply to their tokenized counterparts, as they have similar terms, features, and risks. This letter does not cover stablecoins, which will be subject to licensing as per a previous consultation paper released by the HKMA and other regulators.
The letter also highlighted that the nature of the asset may be influenced by its tokenization structure. For instance, the tokenization of fractionalized interests could potentially be considered a collective investment scheme. The letter provides detailed guidance on due diligence, disclosure, risk management, and custodial services for tokenization initiatives.
The letter expressed the HKMA’s support for AIs’ efforts in tokenization and acknowledged the progress that the industry has made in this area so far.
7 thoughts on “Regulator’s Tokenization & Custody Guidance for Hong Kong Institutions”
Leave a Reply
You must be logged in to post a comment.
I appreciate the HKMA’s efforts to regulate the tokenization and custody of digital assets. This will help to create a robust and regulated environment, attracting more investors and fostering the growth of the industry.
The letter is too focused on compliance and doesn’t prioritize the advancement of the industry.
It’s reassuring to see the HKMA providing detailed guidance on custodial services for tokenization initiatives. It shows that they are committed to creating a supportive ecosystem for digital assets in Hong Kong.
It’s great to see the HKMA actively supporting AIs’ efforts in the tokenization space. Their recognition of the progress made by the industry so far shows their commitment to fostering innovation and embracing digital finance. 🌟💼💰
The letter doesn’t provide enough clarity on how AIs should handle the custody of digital assets.
Tokenization is complex, and these standards don’t seem to address all the potential risks involved.
The fact that stablecoins will be subject to licensing as per a previous consultation paper is a positive move. It will ensure that stablecoin issuers adhere to stringent regulatory standards, promoting stability and investor protection.