Hong Kong tightens crypto custody rules to boost investor trust

Hong Kong’s Securities and Futures Commission (SFC) has introduced new custody rules for licensed cryptocurrency exchanges, aiming to enhance protections for client assets. The measures, announced in late July and reiterated in early August, require exchanges to implement robust safeguards for the storage and management of digital assets. These rules are part of a broader effort to strengthen regulatory oversight in the crypto sector as Hong Kong continues to position itself as a global fintech hub [1][2][3].

The custody requirements mandate that licensed exchanges maintain clear segregation between client assets and their own funds. Additionally, exchanges are now required to adopt standardized protocols for asset custody, including the use of secure cold storage solutions and regular audits. The SFC has emphasized that these rules are designed to restore investor confidence, particularly in the wake of global incidents involving asset mismanagement and theft by unregulated platforms [1][2][3].

The move reflects a tightening of Hong Kong’s approach to crypto regulation. In recent months, the SFC has signaled a stronger commitment to investor protection and market integrity. The latest custody guidelines reinforce this stance, aligning with global regulatory trends that emphasize transparency and accountability in the digital asset space. The rules also come as a response to growing demand for institutional-grade custody services, which are seen as essential for attracting mainstream investment into the crypto market [2][3].

Industry analysts suggest that the new rules may prompt increased collaboration between crypto exchanges and traditional financial institutions. For instance, Citigroup has reportedly explored offering stablecoin custody services, an indication of how traditional players are adapting to the evolving regulatory landscape [4]. This development may lead to a more structured and institutionalized crypto ecosystem in Hong Kong, where regulatory clarity is becoming a key competitive advantage over other jurisdictions.

The timing of the SFC’s announcement also coincides with broader regulatory shifts in the financial sector. While the custody rules are specific to crypto exchanges, they are part of a wider regulatory framework aimed at enhancing investor protection and market stability. These efforts are likely to influence similar developments in other financial services sectors, such as stock trading and investment banking [5].

The implementation of these new custody rules will likely result in compliance costs for exchanges, particularly smaller players with limited resources. However, the SFC has not indicated any phased implementation or transitional support measures in the reported materials. As such, compliance is expected to be immediate, with exchanges required to adapt their operational frameworks to meet the new standards [1][3].

The introduction of these rules underscores the SFC’s role in shaping Hong Kong’s financial landscape. By setting clear expectations for asset custody, the regulator is contributing to the development of a more transparent and trustworthy environment for digital asset trading. This is expected to attract both retail and institutional investors, thereby supporting the long-term growth of Hong Kong’s fintech ecosystem.

Source:

[1] Hong Kong securities watchdog sets new custody rules for crypto exchanges (https://seekingalpha.com/news/4486103-hong-kong-securities-watchdog-sets-new-custody-rules-for-crypto-exchanges)

[2] Hong Kong Regulator Tightens Custody Standards for (https://finance.yahoo.com/news/hong-kong-regulator-tightens-custody-082045637.html)

[3] Trump's SEC Chair Paul Atkins Says Agency Is 'Mobilizing' (https://www.coindesk.com/policy/2025/08/15/trump-s-sec-chair-says-agency-is-mobilizing-to-update-custody-other-guidance)

[4] Future of Money | Currency, Finance & Banking News (https://www.reuters.com/business/future-of-money/)

[5] Brokers - DIY Investor (https://www.diyinvestor.net/xo-brokers/)