Hong Kong's Securities and Futures Commission (SFC) has announced new requirements for digital asset platforms. These measures respond to growing cybersecurity threats that have caused significant investor losses worldwide.
Regulatory Response to Global Threats
The SFC has banned the use of smart contracts in cold wallets and requires continuous reconciliation of client assets due to global custody vulnerabilities. The new rules take immediate effect as Hong Kong seeks to strengthen its position as a regional digital asset hub.
The regulator emphasized that client asset protection remains the top priority for the development of Hong Kong's digital asset ecosystem. "Multiple cybersecurity incidents at overseas virtual asset platforms resulting in significant client asset losses have also highlighted persistent risks to custody globally," the SFC stated in its circular.
New Custody Standards and Technical Requirements
The updated regulatory framework introduces several technical mandates for platforms. The use of smart contracts in cold wallet implementations is now restricted to minimize potential vulnerabilities. Whitelist controls become mandatory to prevent unauthorized asset transfers.
Under the new rules, every transaction must undergo systematic verification to ensure only authorized transfers proceed. Platforms must establish mechanisms for detecting unauthorized access to critical wallet infrastructure with effective 24/7 monitoring.
Hong Kong's Broader Digital Asset Strategy
The custody requirements represent the latest step in Hong Kong's aggressive push to establish dominance in the digital asset space. Earlier this year, the Hong Kong Monetary Authority launched new supervisory measures for local banks developing blockchain products. In May, the passage of the Stablecoin Ordinance introduced comprehensive licensing requirements for stablecoin issuers.
In June, the SFC announced plans to allow digital asset derivatives trading for professional investors, aimed at broadening product offerings and strengthening Hong Kong’s fintech hub credentials.
The immediate implementation of stricter custody standards in Hong Kong reflects growing global concern over digital asset security vulnerabilities. The territory continues to balance investor protection with its ambitions to become Asia's premier cryptocurrency hub through comprehensive regulatory frameworks.
