The Hong Kong Monetary Authority (HKMA) has issued new guidance for Authorised Institutions engaged in digital asset-related activities, mainly focusing on providing custodial services for digital assets.

This initiative aims to ensure that digital assets held in custody are protected and the associated risks adequately managed.

The guidance outlines expected standards for Authorised Institutions, drawing from international standards and practices, to facilitate operational arrangements that match the nature, features, and risks of the digital assets under custody.

This includes assets dependent on cryptography and distributed ledger technologies, excluding limited-purpose digital tokens.

Key areas covered in the guidance include governance and risk management, segregation and safeguarding of client digital assets, delegation and outsourcing, disclosure requirements, record-keeping, reconciliation, and compliance with anti-money laundering and counter-financing of terrorism regulations.

Authorised Institutions are expected to apply these standards to safeguard client digital assets across various activities, including intermediation in virtual asset-related activities, distribution of tokenised products, or standalone custodial services.

Authorised Institutions intending to provide digital asset custodial services must discuss their plans with the HKMA and demonstrate compliance with the expected standards.

Those already offering such services must review and adjust their systems and controls to align with the new guidance, confirming compliance within six months of the circular date.

This guidance is part of the HKMA’s ongoing efforts to support innovation in the banking sector while ensuring robust consumer protection and risk management practices.

The HKMA will continue to monitor the evolving digital asset market and international regulatory landscape, providing further guidance as necessary.

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