HKMA & SFC Publish Custody Guidelines for Virtual Asset Platforms

Hong Kong regulators have introduced a new set of custody guidelines for virtual asset trading platforms (VATPs), tightening oversight as the city moves to establish itself as a leading hub for digital finance. The Hong Kong Monetary Authority (HKMA), in collaboration with the Securities and Futures Commission (SFC), released the framework on Thursday, focusing on how platforms should safeguard client assets and mitigate operational risks.

The guidelines require VATPs to segregate client funds from company assets, ensuring that customer holdings remain protected even if the platform faces insolvency. Licensed operators will also need to maintain detailed records of client assets, undergo regular third-party audits, and implement strict access controls over private keys. Regulators stressed that these measures are designed to reduce the risk of misuse, fraud, or loss of assets in a sector that has seen high-profile failures worldwide.

A central part of the rules addresses the use of cold and hot wallets. Platforms are required to keep the majority of customer assets in cold storage, with strict multi-signature procedures for access. Hot wallets, while necessary for liquidity and day-to-day trading, must be capped at a limited percentage of overall client funds and protected by advanced cybersecurity protocols. The SFC also highlighted the importance of robust insurance coverage to compensate clients in the event of a security breach.

Julia Leung, Chief Executive of the SFC, said the guidelines reflect lessons learned from past collapses of global exchanges that left investors with heavy losses. “Our priority is investor protection. Hong Kong is open to digital asset innovation, but platforms must operate to the same standards of integrity and transparency as traditional financial institutions,” she said.

The new custody framework comes just weeks after Hong Kong rolled out its licensing regime for stablecoin issuers. Together, the measures underscore the city’s efforts to impose clear regulatory boundaries around digital assets, aiming to build trust among both institutional investors and retail users.

Industry players have largely welcomed the guidelines, with several licensed platforms saying that regulatory clarity could attract more mainstream financial institutions to digital asset markets. However, some smaller operators expressed concern that compliance costs, including audits and insurance, could prove burdensome. Analysts suggest that while the rules may consolidate the industry, they could also create a more resilient ecosystem in the long run.

International observers are watching closely, as Hong Kong continues to position itself against Singapore and Dubai in the race to be Asia’s digital asset hub. By combining investor protection with openness to innovation, the city hopes to differentiate itself from less-regulated markets.

For now, VATPs operating in Hong Kong must begin aligning their operations with the custody standards, with regulators signaling they will enforce the rules firmly. The message from authorities is clear: digital asset platforms can thrive in Hong Kong, but only under strong safeguards designed to protect clients and the financial system.