Hong Kong Monetary Authority (HKMA) launches supervisory incubator to assist banks in adopting DLTs

On January 8th, the HKMA launched an initiative to help banks adopt distributed ledger technology (DLT). The initiative will focus on tokenized deposits with the Hong Kong Central Bank and provide support for local banks during the trial.

HKMA’s press release revealed that the incubator was a supervisory agreement fashioned to aid banks in maximizing the potential benefits of DLT adoption. The HKMA would achieve this by effectively managing all related risks. The initiative will augment individual bank and industry-level risk management capabilities, particularly focusing on risks cutting across DLT-based and legacy banking infrastructures. 

Tokenized deposits attracting significant production interest from the industry will be a core focus upon the incubator’s inception as part of this effort. The incubator will offer a one-stop supervisory platform at the individual bank level, enabling banks to reaffirm their risk management control adequacy before fully launching DLT-based initiatives. Banks will have access to dedicated teams from the HKMA to obtain supervisory feedback by leveraging this platform. Teams may also opt to conduct live trials to validate and refine specific aspects of the banks’ risk management implementation under a hands-on and iterative approach, as required.

The incubator to promote DLT risk management best practices

Hong Kong's central bank has launched a "Supervisory Incubator for Distributed Ledger Technology" to support banks in adopting DLT, with a focus on tokenized deposits. The initiative aims to enhance risk management systems and foster innovative banking solutions. $HKMA

— CryptoEdge (@EdGeraldX) January 9, 2025

The incubator will promote industry awareness and understanding of DLT risk management best practices through a range of targeted initiatives. Supervisory guidance, dynamic research projects, and industry sharing sessions will be some of the targeted initiatives. 

These initiatives will collectively enhance the industry’s overall readiness and ability to implement DLT-based solutions in the long run. Mr Yuen said the HKMA needed to provide a supportive environment that allowed innovation to thrive as the banking industry continued to evolve.

“The Supervisory Incubator for DLT is a key component of our strategy to foster the development of DLT-based banking solutions that are safe, efficient, and beneficial to the industry and the wider community.”

~ Arthur Yuen

Altech, WeLab Bank, and Moon Lab representatives also inspired the audience at the January 8th FiNETech4 event. They shared ideas about how DLT and tokenized information augmented financial services provision, internal processes, and transaction security. 

Tokenizing real-world data enables new forms of transactions 

Carmen Chu, executive director at HKMA, said the HKMA expected to witness more sophisticated tokenized asset management as DLT continued to evolve. She highlighted streamlined reconciliation processes, real-time ledger updates, and autonomous bookkeeping as some of the expectations. Chu added that this would ultimately enable new forms of transactions that were not feasible with conventional financial infrastructure.

The executive director pointed out that by tokenizing real-world data, banks could develop innovative financial products with smart contracts tailored to the unique needs of specific industries. She said that this would unlock new revenue streams. 

Wu Jiexhuang, a member of the Hong Kong Legislative Council (HKLC), proposed leveraging China’s ‘one country, two systems’ framework in December to add BTC to Hong Kong’s national reserve for stability. Jiexhuang told a state-owned newspaper, Wen Wei Po, that Hong Kong could learn from the market impact of spot Bitcoin ETFs based in the United States. He added that Trump’s proposal to make Bitcoin a strategic reserve asset could significantly impact traditional markets, citing smaller countries like Bhutan and El Salvador that had adopted BTC reserves. Matt Hogan, research analyst at Fidelity Digital Assets, said that more government treasuries, nations, sovereign wealth funds, and central banks were expected to establish strategic BTC positions.

Meanwhile, the Hong Kong Securities Futures Commission (SFC) approved licenses for Thousand Whales Technology (BVI), Accumulus GBA Technology (Hong Kong), Hong Kong Digital Asset EX, and DFX Labs in December. The four joined HKVAX, Hashkey, and OSL, bringing the total to seven. 

Eric Yip, the SFC executive director of intermediaries, said the agency aimed to strike a balance between safeguarding investor interests and facilitating continuous development of the virtual assets ecosystem.

A Step-By-Step System To Launching Your Web3 Career and Landing High-Paying Crypto Jobs in 90 Days.