On 07 Apr 2025, the HKMA issued guidance requiring authorized institutions to implement robust internal controls, comprehensive risk disclosures, and rigorous third-party oversight for virtual asset staking services provided through custodial arrangements. The circular mandates specific safeguards for client assets, detailed service transparency, and mandatory disclosure of staking-specific risks, with implementation requiring prior HKMA consultation and optional use of the DLT Supervisory Incubator.
This article was generated using SAMS, an AI technology by Timothy Loh LLP.
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Introduction and Scope
On 07 Apr 2025, the Hong Kong Monetary Authority (HKMA) issued a circular setting out standards for authorized institutions (AIs) providing staking services for virtual assets (VAs) as part of custodial services, addressing market developments and growing institutional interest in digital asset activities.
Key Regulatory Requirements
The circular mandates AIs to maintain possession or control of mediums enabling client VA recovery (e.g., private keys and pre-signed exit messages), implement effective policies to prevent errors and safeguard staked VAs, and establish operational rules to manage operational risks and conflicts of interest. AIs must also disclose comprehensive service details including supported VAs, third-party involvement, fees, lock-up periods, reward structures, unstaking processes, uptime performance, outage arrangements, and custodial practices.
Risk Disclosure and Third-Party Oversight
AIs are required to disclose all client risks associated with staking, specifically highlighting slashing risk, lock-up risk, blockchain technical errors, hacking risk, validator inactivity risk, and legal uncertainty affecting client interests. For third-party service providers, AIs must conduct due diligence on the provider's experience, technology infrastructure, risk mitigation, and security controls, with ongoing monitoring required.
Implementation Guidance
AIs must implement adequate policies, procedures, systems, and controls before commencing staking services, ensuring compliance with this circular and other applicable requirements. The HKMA advises AIs to discuss implementation plans with the Authority in advance and notes the availability of the Supervisory Incubator for Distributed Ledger Technology (DLT) for testing staking operations and controls.
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