The Hong Kong Monetary Authority (HKMA) has taken a significant step in shaping the future of digital finance by issuing two comprehensive regulatory guidelines aimed at governing the sale of tokenized assets and virtual asset custody services. These new frameworks, released on February 20, 2025, reflect HKMA’s proactive approach to balancing financial innovation with investor protection, reinforcing Hong Kong’s position as a leading hub for fintech and digital asset development in Asia.
This article explores the key provisions of both guidelines, their implications for banks and investors, and how they align with global regulatory trends.
Tokenized Asset Sales: Ensuring Transparency and Risk Management
The HKMA’s guidance on tokenized asset sales applies to financial products that leverage distributed ledger technology (DLT) to represent real-world assets. This includes instruments not currently regulated under the Securities and Futures Ordinance, such as tokenized deposits, structured deposits, and physical precious metals.
To ensure responsible innovation, the regulator outlines three core requirements:
1. Rigorous Due Diligence
Banks must conduct thorough assessments of:
- The technology infrastructure, especially smart contract audits
- Private key management systems
- Security measures against theft or cyberattacks
- The robustness of the DLT network
- The legal and regulatory status of the tokenized product
This ensures that only well-structured, secure, and compliant offerings reach the market.
2. Comprehensive Risk Disclosure
Transparency is paramount. Financial institutions are required to provide clients with clear, accessible information about:
- Key terms and features of the tokenized product
- Associated risks, including technological, liquidity, and counterparty risks
- The underlying asset’s valuation mechanism
👉 Discover how secure digital asset platforms are transforming financial services today.
Such disclosures empower investors to make informed decisions—especially critical in a space where complexity can obscure risk.
3. Strong Risk Management Frameworks
Banks must implement robust internal systems covering:
- Risk policies and procedures
- Internal controls and compliance monitoring
- Complaint handling mechanisms
- Internal audit functions
- Business continuity planning
These systems help mitigate operational, legal, and reputational risks associated with emerging technologies.
Moreover, if a bank also offers custody services for these tokenized products, it must comply with the HKMA’s separate virtual asset custody standards—ensuring end-to-end regulatory alignment.
Virtual Asset Custody: Safeguarding Client Holdings
As demand grows for institutional-grade custody solutions, the HKMA has introduced clear expectations for banks offering virtual asset custody services. The scope includes:
- Cryptocurrencies
- Tokenized securities (e.g., spot crypto ETFs)
- Other tokenized financial instruments
The guidelines emphasize governance, risk control, and, most critically, client asset protection.
Key Requirements for Custody Providers
🔐 Segregation of Client Assets
One of the most important safeguards is the strict separation of client virtual assets from the bank’s own holdings. This ensures that in the event of insolvency or resolution, client assets remain protected from creditors’ claims—a principle long established in traditional finance but newly applied here.
❌ No Unauthorized Use of Client Assets
Custodians are explicitly prohibited from:
- Transferring client virtual assets without authorization
- Lending, pledging, or re-pledging client holdings
This prevents misuse of funds and aligns with best practices seen in global financial centers like Singapore and Switzerland.
🧊 98% Cold Storage Requirement
To minimize exposure to cyber threats, custodians must store at least 98% of client virtual assets in offline ("cold wallet") storage. This significantly reduces attack surfaces compared to hot wallets connected to the internet.
🛡️ Insurance and Compensation Arrangements
Banks must establish adequate insurance coverage or alternative compensation mechanisms to protect against potential losses due to hacking, system failure, or human error. This builds trust and reassures institutional and retail clients alike.
👉 Learn how top-tier security protocols are setting new standards in digital finance.
These measures collectively create a high-barrier environment for custody operations—encouraging professionalism while deterring bad actors.
Aligning with Global Standards and Market Trends
The HKMA’s approach reflects growing international consensus on digital asset regulation. By referencing international standards and industry best practices, Hong Kong positions itself as a jurisdiction that supports innovation without compromising safety.
For example:
- The Financial Stability Board (FSB) and Basel Committee have called for stricter custody rules
- The IOSCO Principles for Financial Market Infrastructures stress segregation and risk mitigation
- Jurisdictions like Japan and Germany have implemented similar cold storage and disclosure mandates
Hong Kong’s framework is not just reactive—it’s forward-looking. It anticipates increased institutional participation in tokenized markets, including:
- Real estate tokenization
- Green bond issuance via blockchain
- Cross-border payment solutions using CBDCs
By establishing clarity early, the HKMA enables banks to innovate confidently within defined boundaries.
Frequently Asked Questions (FAQ)
Q: What types of assets are covered under the tokenized asset sales guideline?
A: The guideline covers DLT-based representations of real-world assets such as tokenized deposits, structured products, and physical commodities like gold—even if they fall outside traditional securities regulation.
Q: Can banks use client virtual assets for lending or staking?
A: No. Unless there is explicit client consent and full risk disclosure, banks are prohibited from lending, pledging, or re-pledging any client-held virtual assets.
Q: Why is 98% cold storage required?
A: Cold wallets are offline and thus far less vulnerable to hacking. Requiring 98% offline storage dramatically reduces systemic risk and protects client funds from cyberattacks.
Q: Are these guidelines mandatory?
A: Yes. While issued as “supervisory expectations,” they are binding on all banks operating in Hong Kong that engage in these activities.
Q: Do the rules apply to retail investors?
A: Yes. The protections—especially around disclosure and asset segregation—apply regardless of whether the client is institutional or retail.
👉 See how compliant platforms are integrating next-generation custody solutions.
Conclusion: Building Trust Through Clarity
The HKMA’s dual guidelines mark a pivotal moment in Hong Kong’s digital financial evolution. By setting clear rules for tokenized asset sales and virtual asset custody, the authority fosters innovation while prioritizing consumer protection and financial stability.
For banks, this means investing in robust compliance, cybersecurity, and client education. For investors, it means greater confidence in the legitimacy and safety of digital financial products.
As blockchain continues to reshape finance, Hong Kong’s balanced regulatory approach could serve as a model for other jurisdictions navigating this complex transition.
Core Keywords:
tokenized assets, virtual asset custody, distributed ledger technology (DLT), Hong Kong Monetary Authority (HKMA), cold wallet storage, risk disclosure, asset segregation, digital finance regulation