The Hong Kong Monetary Authority (HKMA) has issued correspondence to the leaders of authorized institutions (AIs) on February 20th regarding the tokenization and custody of digital assets.
In one of the letters, the HKMA outlined the standards for the provision of customer asset custody, “taking into account international standards and practices.” These standards apply whether the AIs obtain the assets through standalone services or other activities.
The annex of the letter contains standards in eight different categories. These standards are primarily broad statements, such as “Senior management and staff involved in the AI’s custodial activities and related control functions should possess the necessary knowledge, skills, and expertise to fulfill their responsibilities.”
The topics covered in these standards include governance and risk management, asset segregation, outsourcing, disclosure, and Anti-Money Laundering and Counter-Financing of Terrorism.
The second letter focuses on the sale and distribution of tokenized products that are not regulated under the Securities and Futures Ordinance, and are not subject to the requirements of the Securities and Futures Commission. It clarifies that this letter does not apply to stablecoins, as they will be subject to licensing according to a consultation paper released by the HKMA and other regulators in December. The letter also warns that the nature of the asset may be influenced by the structure of the tokenization, and emphasizes the importance of due diligence, disclosure, risk management, and custodial services.
“The HKMA supports the initiatives of AIs in tokenization and is pleased with the progress the industry has made so far,” the letter states.
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