Hong Kong lays out provisional guidance for crypto custody

The Hong Kong Monetary Authority (HKMA) published an 11-page circular Tuesday on its standards for tokenization and digital asset custody for locally authorized institutions. 

The document asked institutions to commit to comprehensive risk assessments and allocate sufficient resources for proper governance and risk management of their crypto custody services. Additionally, the HKMA requested the entities to establish internal policies to properly address potential or existing conflicts of interest.

Such authorized institutions are also expected to segregate client assets from company assets and maintain contingency and disaster recovery plans to lessen “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," the HKMA guidance said. 

Other requirements from Hong Kong’s de facto central bank include the full disclosure of risks involved with crypto custody arrangements and compliance with its anti-money laundering and countering terrorist financing guidance.

“Such [authorized institutions] 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,” the HKMA noted.

The guideline follows Hong Kong’s recent movement to regain its position as Asia’s crypto hub. In June 2023, the region officially started its crypto licensing regime for virtual asset trading platforms, allowing licensed exchanges to offer retail trading services. Hong Kong has granted licenses to two platforms — HashKey and OSL.