The Hong Kong Monetary Authority (HKMA) has unveiled the “Supervisory Incubator for Distributed Ledger Technology” (DLT) to help banks safely adopt blockchain-based solutions and unlock their potential.
The initiative, announced on January 8, is aimed to assist banks in adopting blockchain technology.
“As the banking industry continues to evolve, it is essential that we provide a supportive environment for innovation to thrive,” Arthur Yuen, HKMA’s Deputy Chief Executive, said.
He described the program as pivotal to developing safe, efficient, and impactful DLT-based banking systems.
The Incubator Includes Two Components
The incubator comprises two primary components. The first offers direct support to individual banks, including access to a central bank advisory team to guide live trials.
These trials aim to test risk management systems before launching DLT-driven services, with an initial focus on tokenized deposits.
The second component involves industry-wide collaboration, sharing best practices, conducting research, and issuing supervisory guidance to streamline blockchain integration across the banking sector.
The announcement was made at the HKMA’s FiNETech4 event, attended by over 300 financial professionals.
“As DLT evolves, we could witness more sophisticated ways of managing tokenized assets, such as real-time ledger updates, autonomous bookkeeping, and streamlined reconciliation processes,” Carmen Chu, HKMA Executive Director, said.
She noted that these innovations could make transactions impossible under traditional systems and create tailored financial products using smart contracts.
The initiative complements broader efforts in Hong Kong to advance financial technology.
In December, Hong Kong’s securities regulator approved licenses for four additional virtual asset trading platforms, bringing the total to seven.
Legislative discussions also explored integrating Bitcoin into the national reserve, leveraging the “one country, two systems” framework to enhance financial stability.
Last week, Hong Kong legislator Wu Jiexhuang asked authorities to explore including Bitcoin in ETFs as a first move, which could later pave the way for increased Bitcoin holdings.
He argued that such a step would attract talent and investment, reinforce financial stability, and mitigate market disruptions caused by Bitcoin’s broader adoption.
Singapore Outpaces Hong Kong in Crypto Licensing
Singapore has issued 13 cryptocurrency licenses over the past year to prominent players such as OKX, Upbit, Anchorage, BitGo, and GSR, more than doubling the licenses granted in 2023.
In contrast, Hong Kong’s efforts to position itself as a crypto-friendly financial center have lagged.
The city has issued only seven platform licenses, with four being restricted approvals granted in December.
Regulatory hurdles and a slower approval process have made Hong Kong less attractive for crypto firms.
Prominent exchanges like OKX and Bybit have withdrawn their applications in Hong Kong, citing regulatory challenges.
Hong Kong’s stricter rules, allowing trading only in highly liquid cryptocurrencies such as Bitcoin and Ether, further limit its appeal by excluding smaller altcoins that provide broader market opportunities.
Additionally, China’s strict stance on cryptocurrency trading adds to Hong Kong’s unique challenges.
The mainland’s blanket ban on crypto trading creates a distinct risk profile, deterring some businesses from pursuing opportunities in the city.
Recently, Hong Kong Legislative Council member voiced criticism against Hong Kong’s cryptocurrency licensing system, citing its impact on market confidence.
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