On Tuesday, the Hong Kong Monetary Authority (HKMA) released an 11-page circular outlining its guidelines for tokenization and digital asset custody for institutions authorized in the region.
The recent guidance from the Hong Kong Monetary Authority (HKMA) supplements the licensing framework introduced last year, providing crypto exchanges with a clear pathway to operate under regulation.
In the 11-page “Expected Standards” document, the HKMA emphasizes the importance of authorized institutions conducting thorough risk assessments and implementing appropriate policies to address identified risks associated with their cryptocurrency custody services.
Additionally, the central bank calls for the sector to dedicate sufficient resources, including skilled personnel and expertise, to custodial activities.
This is to effectively manage potential conflicts of interest and establish robust disaster recovery measures for ensuring uninterrupted business operations.
The HKMA requires institutions providing custody services to reduce “the risk of loss of client digital assets due to theft, fraud, negligence, or other acts of misappropriation, as well as delayed access or inaccessibility of client digital assets.”
They must also undergo independent system audits, keep a significant portion of client digital assets in cold storage, securely store private keys within Hong Kong, and be prepared to provide records to the HKMA upon request.
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