Hong Kong Issues Guidance on Crypto Custody Standards

Hong Kong's Monetary Authority (HKMA) issued an 11-page circular on Tuesday outlining standards for tokenization and digital asset custody for locally authorized institutions.

Provisional Guidance for Crypto Custody

The HKMA's document emphasizes the importance of comprehensive risk assessments and adequate resource allocation for proper governance and risk management of crypto custody services. It also calls for the establishment of internal policies to address potential conflicts of interest.

Ensuring Security and Compliance

Authorized institutions are required to segregate client assets from company assets and maintain contingency plans to mitigate various risks, including theft, fraud, and negligence. The guidance also mandates full disclosure of risks associated with crypto custody arrangements and compliance with anti-money laundering and counter-terrorist financing regulations.

Compliance Deadline

Institutions engaging in crypto custody activities must notify the HKMA within six months and confirm compliance with the outlined standards.

Context of Hong Kong's Crypto Regulatory Landscape

The guidance aligns with Hong Kong's efforts to position itself as a prominent crypto hub in Asia. In June 2023, the region implemented a licensing regime for virtual asset trading platforms, with two platforms, HashKey and OSL, already granted licenses.

Conclusion:Crypto Custody Guidelines: Compliance Focus

Hong Kong has provided provisional guidance for crypto custody, emphasizing risk assessment, compliance, and segregation of assets. Institutions have six months to comply with the outlined standards.