The Hong Kong Financial Authority (HKMA) issued letters to the heads of licensed establishments (AIs) on Feb. 20 regarding tokenization and custody of digital property.
In a single letter, the HKMA wrote that it was setting out requirements for the availability of custody of buyer property, “just about worldwide requirements and practices.” They apply whether or not the AIs obtain the property from offering standalone providers or by different actions.
“AIs […] ought to talk about with the HKMA prematurely and reveal to the satisfaction of the HKMA that they meet the anticipated requirements and necessities on this round.”
The annex to the letter presents requirements in eight classes. The requirements are primarily extremely generalized statements, reminiscent of “Senior administration and employees participating within the AI’s custodial actions and associated management features ought to possess the mandatory data, abilities and experience to discharge their tasks.”
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Subjects lined embody governance and danger administration, asset segregation, outsourcing, disclosure and Anti-Cash Laundering and Counter-Financing of Terrorism.
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The second letter involved the sale and distribution of tokenized merchandise that aren’t regulated beneath the Securities and Futures Ordinance or topic to the necessities the Securities and Futures Fee. It famous:
“The prevailing supervisory necessities and client/investor safety measures for the sale and distribution of a product are additionally relevant to its tokenised type because it has phrases, options and dangers […] just like these of the underlying product.”
It doesn’t apply to stablecoins, which will be subject to licensing in response to a session paper launched by the HKMA and different regulators in December. The Feb. 20 letter cautioned that the character of the asset could also be affected by the construction of the tokenization:
“For instance, the association for tokenisation of fractionalised pursuits in an asset could quantity to a collective funding scheme.”
Due diligence, disclosure, danger administration and custodial providers are handled intimately.
“The HKMA is supportive of AIs’ initiatives on tokenisation, and is inspired by the progress the business has made thus far,” the letter states.
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