RegStream

The Hong Kong Monetary Authority (HKMA) launched the Supervisory Incubator for Distributed Ledger Technology (the Incubator) today (8 January) to help banks responsibly unlock the transformative potential of distributed ledger technology (DLT).

The Incubator is a new supervisory arrangement designed to help banks maximise the potential benefits of DLT adoption by effectively managing the associated risks. It will augment risk management capabilities at both the individual bank and industry levels, with a particular focus on addressing those risks that may arise as banks move to productionise relevant services (e. g. deposits and loans) that cut across DLT-based and legacy banking infrastructures. As part of this effort, tokenised deposits - which have attracted significant production interest from industry - will be a core focus upon the Incubator’s inception.

At the individual bank level, the Incubator will offer a one- stop supervisory platform that enables banks to reaffirm the adequacy of their risk management controls prior to the full launch of a DLT- based initiative. By leveraging this platform, banks will have access to a dedicated team from the HKMA for obtaining supervisory feedback and may opt to conduct live trials to validate and refine specific aspects of their risk management implementation under a hands-on and iterative approach, as needed.

The Incubator will also promote industry awareness and understanding of best practices in DLT risk management through a range of targeted initiatives, such as supervisory guidance, industry sharing sessions, and forward-looking research projects. Collectively, these initiatives will enhance the overall industry’s ability and readiness to deploy DLT-based solutions in the long run.

Mr Arthur Yuen, Deputy Chief Executive of the HKMA, said, “As the banking industry continues to evolve, it is essential that we provide a supportive environment for innovation to thrive. 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. ”

The HKMA announced the launch of the Incubator during the fourth edition of the FiNETech series (FiNETech4), which brought together over 300 professionals from the banking, securities, insurance, mandatory provident fund and technology sectors to explore how DLT could help the financial industry break new frontiers, including with respect to transaction efficiency and information utilisation. The FiNETech series was established in April 2024 as a signature initiative of the HKMA’s ongoing work to promote fintech adoption across the industry, and is supported by financial regulators1, industry associations2, as well as technology communities3, and powered by market experts4.

Hong Kong Monetary Authority 8 January 2025

Ms Carmen Chu, Executive Director (Banking Supervision) of the Hong Kong Monetary Authority delivered her opening remarks at FiNETech4 where the new Supervisory Incubator for Distributed Ledger Technology was announced.

Representatives from the Hong Kong Monetary Authority, the Securities and Futures Commission, the Mandatory Provident Fund Schemes Authority, Authority of Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone of Shenzhen, banks as well as other financial institutions, industry associations and Fintech solutions providers take part in FiNETech4 on Distributed Ledger Technology.

Subject matter experts from Standard Chartered Bank, Fidelity International, the Private Wealth Management Association and the Hong Kong Monetary Authority discuss the transformative potential of Distributed Ledger Technology during a panel discussion.

During a fireside chat, representatives from WeLab Bank, Moon Lab and Altech inspire the audience with ideas for how Distributed Ledger Technology and tokenised information could augment internal processes, transaction security and financial services provision.

1 The HKMA, the Securities and Futures Commission, the Insurance Authority and the Mandatory Provident Fund Schemes Authority.

2 The Hong Kong Association of Banks and the FinTech Association of Hong Kong.

3 Cyberport and the Hong Kong Science and Technology Parks Corporation.

4 KPMG and Quinlan & Associates.