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HKMA Clarifies Tokenization Standards for Authorized Institutions

HKMA sets tokenization and custody guidelines for financial institutions, ensuring adherence to global standards and investor protection.
HKMA Clarifies Tokenization Standards for Authorized Institutions

Highlights

  • HKMA sets comprehensive standards for digital asset custody.
  • Tokenized product regulations align with traditional finance norms.
  • HKMA supports innovation in Hong Kong's tokenization market.

The Hong Kong Monetary Authority (HKMA) has recently published two detailed guidance letters to all authorized institutions (AIs) in its domain. By doing so, these communications also set the regulatory requirements and standards for the tokenization and custody of digital assets, which represents a significant step towards harmonizing the rapidly growing tokenization area with the existing financial practices and international norms.

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HKMA’s Tokenization and Custody Standards

One of the two letters addresses the depositary function of digital assets, demanding AIs follow the criteria that align with the global best practices in management. These criteria cover eight vital aspects, governance, risk management, and asset segregation.

The HKMA stresses that the senior management and staff involved in custody should have the necessary experience for their duties to be carried out efficiently.

Additionally, the letter emphasizes the importance of AIs initiating discussions with the HKMA and demonstrating their adherence to the standards and requirements as specified. Such a proactive approach is intended to make the custodian services of the institutions strong, safe, and customer-friendly.

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Tokenized Products Regulations and Consequences

The second letter deals with the sale and distribution of tokenized products, which are not subject to the Securities and Futures Ordinance. It also reaffirms that the current oversight requirements and consumer protection policies that apply to traditional financial assets also apply to their tokenized versions.

This refinement guarantees that the tokenized products’ essential characteristics, terms, and risks are clear and understandable to both consumers and investors.

The letter identifies that specific tokenization structures, such as the division of stake in an asset, may be termed collective investment schemes. This understanding causes AIs to practice due diligence and employ complete risk management and disclosure practices when dealing with tokenized products.

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Market Overview and Developments

The HKMA letters not only define the regulatory regime for the tokenization and custody services but also express the authority’s friendly attitude towards innovation in the financial sector.

Recognition of the strides made by the industry in tokenization by HKMA is proof of Hong Kong’s dedication to nurturing an environment where digital asset innovation is promoted and at the same time, investor protection and market integrity are maintained.

Read Also: AI News: Adobe Launches Generative AI Feature for PDFs

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Kelvin Munene Murithi

Kelvin Munene is a crypto and finance journalist with over 5 years of experience, offering in-depth market analysis and expert commentary . With a Bachelor's degree in Journalism and Actuarial Science from Mount Kenya University, Kelvin is known for his meticulous research and strong writing skills, particularly in cryptocurrency, blockchain, and financial markets. His work has been featured across top industry publications such as Coingape, Cryptobasic, MetaNews, Cryptotimes, Coinedition, TheCoinrepublic, Cryptotale, and Analytics Insight among others, where he consistently provides timely updates and insightful content. Kelvin’s focus lies in uncovering emerging trends in the crypto space, delivering factual and data-driven analyses that help readers make informed decisions. His expertise extends across market cycles, technological innovations, and regulatory shifts that shape the crypto landscape. Beyond his professional achievements, Kelvin has a passion for chess, traveling, and exploring new adventures.

Why trust CoinGape: CoinGape has covered the cryptocurrency industry since 2017, aiming to provide informative insights to our readers. Our journalists and analysts bring years of experience in market analysis and blockchain technology to ensure factual accuracy and balanced reporting. By following our Editorial Policy, our writers verify every source, fact-check each story, rely on reputable sources, and attribute quotes and media correctly. We also follow a rigorous Review Methodology when evaluating exchanges and tools. From emerging blockchain projects and coin launches to industry events and technical developments, we cover all facets of the digital asset space with unwavering commitment to timely, relevant information.
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