Hong Kong Issues Guidelines for Crypto Custody Firms

The Hong Kong Monetary Authority (HKMA) released guidelines for firms that seek to provide crypto custody services to their customers in the region and asked them to adhere to its standards for tokenization and digital asset custody for locally authorized institutions. 

As reported earlier by TheCoinRise, Hong Kong is the top destination for digital asset firms that aim to establish operations in Asia because it has proactively adapted to the evolving crypto landscape. The special administrative region (SAR) of China has taken a balanced approach to crypto regulation. 

Hong Kong Issues New Guidelines

The regulatory document published by the Hong Kong regulator urges financial institutions to pledge their dedication to conducting thorough risk assessments and dedicating ample resources to ensure effective governance and risk management in the realm of cryptocurrency custody services. 

Notably, the HKMA also calls upon these entities to formulate internal policies that effectively navigate potential or existing conflicts of interest. It is important to note that Hong Kong decided to strengthen its crypto policies after the recent arrest of six individuals tied to the JPEX cryptocurrency exchange scam. 

Segregation of Assets

The Hong Kong regulator asked crypto custody firms to separate the clients’ assets from the company’s assets and also emphasized the importance of maintaining backup disaster plans 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.”

Additional Stipulations 

Additional stipulations from the Hong Kong regulator include the complete disclosure of risks associated with cryptocurrency custody arrangements and strict adherence to its guidelines on anti-money laundering (AML) and countering terrorist financing.

“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 said.

Crypto Firms Migrate to Hong Kong

Many digital asset institutions have been opening offices in Hong Kong due to its welcoming policies surrounding cryptocurrencies. Recently, Bybit, a prominent cryptocurrency exchange, announced that it had filed an application to operate as a “virtual asset trading platform” in the region. 

On the other hand, following the recent approval of spot BTC ETFs in the US, the SAR is also planning to list a spot ETF. Recently, the Securities and Futures Commission (SFC) received a spot Bitcoin ETF application from Harvest Global Investments, a top asset management company in China.