Hong Kong Launches Incubator to Supervise Banks’ Blockchain Experiments

The Hong Kong Monetary Authority (HKMA) has launched a Distributed Ledger Technology (DLT) initiative to assist banks with risks associated with blockchain experiments.
On Jan. 8, the HKMA unveiled the ‘Supervisory Incubator’ to support the banking sector with the transformative potential of DLT. The Incubator will focus on tokenized deposits with the Hong Kong Central Bank, offer supervision from a dedicated HKMA team, and provide feedback regarding trials and other risks associated with DLT adoption in the traditional banking system.
“Trade finance automation is one key area where DLT could assist in unlocking financial resources. Leveraging tokenized deposits and more real-time risk data, financial resources such as collateral could be freed up in a more agile manner, allowing them to be redeployed to generate incremental returns,” said Carmen Chu, HKMA Executive Director.
Chu pointed out that as DLT continues to evolve, there will be more sophisticated ways to manage tokenized assets, including real-time ledger updates, autonomous bookkeeping, and streamlined reconciliation processes.
“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,” said Arthur Yuen, Deputy Chief Executive of the HKMA.
Considering Hong Kong’s stated goal of becoming a regional crypto hub, the banking sector needs to evolve under a supportive environment for innovation. The DLT initiative will promote industry-wide development backed by research projects, supervisory guidance, and sharing best practices.
The HKMA’s initiative was launched following the Hong Kong Securities and Futures Commission granting licenses to four cryptocurrency exchanges last month.
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