On 27 Nov 2025, the Hong Kong Monetary Authority issued the updated Supervisory Policy Manual module LM-1, establishing the regulatory framework for liquidity risk supervision in Hong Kong. The document sets out requirements for Liquidity Coverage Ratio (LCR), Liquidity Maintenance Ratio (LMR), Net Stable Funding Ratio (NSFR), and Core Funding Ratio (CFR), with specific guidance on the treatment of cryptoasset exposures under these liquidity ratios. The HKMA has introduced detailed classifications for different types of cryptoassets and their appropriate treatment under the various liquidity requirements.
This article was generated using SAMS, an AI technology by Timothy Loh LLP.
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Introduction to Regulatory Framework
On 27 Nov 2025, the Hong Kong Monetary Authority (HKMA) issued the latest version (V.5) of its Supervisory Policy Manual (SPM) module LM-1, which provides the regulatory framework for supervising liquidity risk for authorized institutions (Als) in Hong Kong, including specific guidance on the treatment of cryptoasset exposures. This document supersedes the previous version dated 13.12.2024 and sets out the HKMA's approach to supervising liquidity risk, including the application of statutory liquidity requirements.
Key Liquidity Ratios and Requirements
The document establishes four key statutory liquidity requirements: Liquidity Coverage Ratio (LCR) for category 1 institutions, Liquidity Maintenance Ratio (LMR) for category 2 institutions, Net Stable Funding Ratio (NSFR) for category 1 institutions, and Core Funding Ratio (CFR) for category 2A institutions. Category 1 institutions must maintain an LCR of at least 100% (phased in from 2015 to 2019), while category 2 institutions must maintain an LMR of at least 25% on average monthly. The HKMA has also introduced specific requirements for the treatment of cryptoassets under these liquidity ratios, with detailed guidance on how different types of cryptoassets should be classified and measured.
Specific Guidance on Cryptoassets
The document provides detailed guidance on the treatment of cryptoasset exposures under the LCR, LMR, NSFR, and CFR. Cryptoassets must not be recognized as High-Quality Liquid Assets (HQLA) unless they meet specific criteria, including being a group 1a cryptoasset (a tokenized version of a traditional asset meeting HQLA requirements). The document distinguishes between tokenized claims, stablecoins, and other cryptoassets, with different treatment requirements for each. For example, tokenized claims must be treated as deposits or unsecured funding under specific conditions, while stablecoins must be treated similarly to non-HQLA debt securities. The HKMA retains the authority to apply more stringent treatments if it determines additional liquidity risks exist in particular cryptoassets.
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