Hong Kong: Adopted HKMA Guidance on Provision of Custodial Services for Digital Assets

On 20 February 2024, the Hong Kong Monetary Authority (HKMA) adopted a guidance on the provision of custodial services for digital assets. The guidance applies to authorised institutions (AIs) and subsidiaries of locally incorporated AIs that conduct digital asset custodial activities. The guidance, aimed at AIs interested in digital asset-related activities, provides guidance on safeguarding client digital assets and managing associated risks. In particular, the guidance sets standards in the areas of governance and risk management, segregation of client digital assets, safeguards of client digital assets, delegation and outsourcing, disclosure, record keeping and reconciliation of client digital assets, anti-money laundering and counter-financing of terrorism as well as ongoing monitoring. The standards set out in the guidance are based on international practices and require AIs to establish operational arrangements that align with the nature, features, and risks of the digital assets under custody. AIs intending to provide digital asset custodial services are required to inform the HKMA in advance and demonstrate compliance with the expected standards and requirements within six months.