The Hong Kong Monetary Authority Sets Tokenization and Custody Standards
The Hong Kong Monetary Authority (HKMA) has released two detailed guidance letters to all authorized institutions (AIs) in its jurisdiction. These letters establish the regulatory requirements and standards for the tokenization and custody of digital assets, marking a significant step towards aligning tokenization practices with existing financial norms.
HKMA’s Guidance on Depositary Function of Digital Assets
- The first letter addresses the depositary function of digital assets, outlining criteria that AIs must follow, including governance, risk management, and asset segregation.
- Senior management and staff involved in custody must possess the necessary experience for efficient performance.
- A proactive approach is encouraged, with AIs initiating discussions with HKMA and demonstrating adherence to the standards and requirements.
Regulations and Consequences for Tokenized Products
- The second letter focuses on the sale and distribution of tokenized products, clarifying that current oversight requirements and consumer protection policies apply to these products.
- Tokenized products must provide clear and understandable information about their characteristics, terms, and risks to consumers and investors.
- Specific tokenization structures may be considered collective investment schemes, necessitating due diligence and comprehensive risk management practices by AIs.
Supporting Innovation while Ensuring Investor Protection
The HKMA’s letters not only establish the regulatory framework for tokenization and custody services but also demonstrate a favorable attitude towards financial innovation. This recognition reflects Hong Kong’s commitment to fostering an environment that promotes digital asset innovation while safeguarding investor protection and market integrity.
Hot Take: HKMA Sets Standards for Tokenization and Custody Services in Hong Kong
The Hong Kong Monetary Authority has taken a significant step towards regulating tokenization and custody services in the region. By issuing detailed guidance letters, the HKMA has established criteria for AIs to follow in their depositary function of digital assets and clarified regulations for tokenized products. This move demonstrates Hong Kong’s dedication to supporting financial innovation while ensuring investor protection and market integrity. The HKMA’s proactive approach encourages AIs to initiate discussions and demonstrate adherence to standards, contributing to stronger, safer, and customer-friendly custodian services. Overall, these developments signal a harmonization between tokenization practices and existing financial norms in Hong Kong.
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