Hong Kong SFC Raises Crypto Custody Standards to Strengthen Security

Hong Kong’s Securities and Futures Commission (SFC) has introduced updated guidelines for virtual asset trading platforms (VATPs), significantly raising the bar for asset custody and security practices. The reforms, part of the SFC’s ASPIRe roadmap, are a response to global cybersecurity incidents and vulnerabilities identified in recent local assessments. The new guidance mandates enhanced wallet infrastructure, access controls, and management oversight to protect client assets [1].

The SFC emphasized that licensed VATPs must prioritize the security of client funds, with Dr. Eric Yip, Executive Director of Intermediaries at the SFC, stating that “client asset protection must always remain a top priority.” The circular outlines minimum standards for cold wallet management and requires platforms to reassess their existing custody systems to close identified gaps [1].

A key restriction under the updated framework is the ban on using smart contracts for managing cold wallets. This move is intended to prevent potential exploitation of automated protocols that could lead to unauthorized access or fund loss. Furthermore, platforms that rely on third-party custodial solutions are required to implement rigorous verification and security protocols to ensure compliance with the new standards [2].

The SFC cited recent global cases where platforms suffered substantial losses due to compromised wallets and weak verification processes. These incidents have highlighted the necessity of stricter operational controls, including real-time threat monitoring and strict device approval procedures. The regulator also noted weaknesses in local cybersecurity practices, prompting a broader call for enhanced digital defenses [1].

The guidance provides a practical roadmap for VATPs to refine their operational and security procedures, aligning with the SFC’s vision of building a trustworthy digital asset ecosystem. By setting clear expectations for custody practices, the SFC aims to foster a more secure and resilient market. Dr. Yip added that the updated standards serve as a foundational framework for future custodians and support the industry’s long-term development [1].

Through these measures, the SFC is positioning Hong Kong as a more secure and regulated environment for digital asset activities. The reforms are expected to influence how platforms manage assets, mitigate risks, and respond to emerging threats in the rapidly evolving virtual asset landscape [1].

Source: [1] SFC Custody Overhaul Sets Higher Bar for Hong Kong Crypto Platforms

(https://www.livebitcoinnews.com/sfc-custody-overhaul-sets-higher-bar-for-hong-kong-crypto-platforms/)

[2] Hong Kong's SFC Blocks Smart Contracts for Cold ... - TopNews

(https://topnews.in/hong-kong-s-sfc-blocks-smart-contracts-cold-cryptocurrency-wallets-and-other-crypto-reforms-2417951)