Hong Kong considers regulatory regime change for crypto-holding banks

The Hong Kong Monetary Authority (HKMA) proposed more lenient capital requirements for financial institutions holding certain digital assets on Wednesday. The initiative suggests the region’s drive to become a global crypto hub.

Local media reported that the country’s central bank introduced a new supervisory policy manual module, CRP-1. The provision outlines how virtual assets should be classified under the Basel Committee on Banking Supervision’s global capital standards.

HKMA implements Basel standards in Hong Kong

The Hong Kong Monetary Authority issued a note in mid-August confirming that the international laws are scheduled to take effect in the country in early 2026. The consultation paper was circulated to the local banking sector, detailing the central bank’s approach to implementing the Basel standards within Hong Kong’s regulatory framework. 

The new provisions also focus on how data centers treat crypto assets that run on permissionless blockchains. Under the latest draft guidelines, cryptocurrencies built on permissionless blockchain networks could qualify for lower bank capital requirements if their issuer implements functional risk management and mitigation measures.

The new banking proposal separates tokenized assets and stablecoins that meet the stablecoin framework from unbacked crypto like BTC and ETH, instead of treating all digital assets the same way. The Basel rules also attract a 1,250% risk weight that requires banks to hold capital equivalent to 100% or more of the digital assets’ value as a buffer against potential losses. 

The rules make it uneconomical for banks to work with virtual assets, but the new provisions could lower the thresholds for qualifying crypto holdings. HKMA also plans to approve only a small group of stablecoin issuers for a start, giving them ample time in the remaining months till early next year to prepare before the capital requirements commence. 

Over the years, the country has established regulatory infrastructure for cryptocurrencies, including licensing frameworks for crypto exchanges and stablecoin issuers. The country’s Securities and Futures Commission (SFC) also updated its guidance in August, requiring licensed crypto platforms to strengthen custody practices for client funds.

The SFC called for a review of virtual asset trading platforms’ custody practices following multiple overseas incidents that exposed vulnerabilities and caused significant client losses. The agency also detailed its new expectations, which covered senior management responsibilities, cold wallet infrastructure, real-time threat monitoring, and third-party wallet oversight.

HKMA establishes provisions for stablecoin issuers in Hong Kong

Under the new provisions, stablecoin issuers in Hong Kong should be licensed to issue a stablecoin that purports to maintain a stable value by reference to the Hong Kong dollar. The companies must also maintain up to HK$25 million in share capital, HK$3 million in liquid capital, and excess liquid capital to maintain a firm’s operating expenses for at least 12 months.

HKMA also allows stablecoin holders to redeem their assets at par value, with the process required to take one business day. The bank also prohibits issuers from imposing unreasonable fees or conditions on redemption requests.

The central bank also warned that issuers operating regulated stablecoin activity without a license risk a fine of up to HK$5 million and imprisonment of up to seven years. The issuer will also be subjected to a daily fine of HK$100,000 for every day the offence continues. 

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