The regulator has also introduced requirements for institutions to manage conflicts of interest when dealing with digital assets

Hong Kong regulator has developed standards for tokenization and custody of digital assets

21.02.2024 - 13:20

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2 min

What’s new? On February 20, the Hong Kong Monetary Authority (HKMA) published standards on tokenization and custody of digital assets for local authorized institutions. Organizations are asked to conduct comprehensive risk assessments and allocate sufficient resources to properly manage and control the provision of cryptocurrency custody services. In addition, the HKMA required institutions to develop internal policies to appropriately address potential or existing conflicts of interest.

HKMA guidance

What else is known? Authorized institutions must segregate customer assets from company funds and maintain recovery plans to reduce “the risk of loss of client digital assets due to theft, fraud, negligence or other acts of misappropriation," the HKMA guidance says.

Other de facto requirements from Hong Kong’s central bank include full disclosure of the risks associated with holding cryptocurrencies and compliance with anti-money laundering and counter-terrorist financing (AML/CFT) guidelines.

“Such or the relevant locally incorporated authorized institutions (with subsidiaries already engaging in such activities) should notify the HKMA and confirm that they meet the expected standards in the Annex within six months from the date of this circular,” representatives of the regulator noted.

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Late last year, the HKMA, together with the Financial Services and the Treasury Bureau (FSTB), introduced a bill to regulate issuers of fiat-referenced stablecoins (FRS), involving the implementation of a regulatory sandbox mechanism.

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