HKMA Introduces Supervisory Incubator to Support Adoption of Distributed Ledger Technology (DLT)

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

The Incubator is a supervisory arrangement designed to help banks maximize the “potential benefits” of DLT adoption by “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 productionize relevant services (e.g. deposits and loans) that cut across DLT-based and legacy banking infrastructures.”

As part of this effort, tokenized 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, banking platforms will have access to a 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 aim to 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 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 utilization.”

The FiNETech series was established in April 2024 as a signature initiative of the HKMA’s ongoing work to support fintech adoption across the industry, and is “supported by financial regulators, industry associations, as well as technology communities, and powered by market experts.”



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