HKMA launches supervisory incubator to promote responsible use of distributed ledger technology

According to an official announcement, the Hong Kong Monetary Authority (HKMA) has launched the Distributed Ledger Technology Regulatory Incubator (Incubator) to help banks responsibly explore the potential of distributed ledger technology (DLT). The Incubator is a new regulatory arrangement that aims to help banks fully tap the potential of DLT and effectively manage related risks. The Incubator will enhance the risk management capabilities of individual banks and the banking industry as a whole, especially the risks that may arise when banks launch services that involve both DLT banking infrastructure and traditional banking infrastructure (such as deposits and loans). Tokenized deposits, which are of concern to the industry, will be the focus of the incubator after its launch. For individual banks, the Incubator will provide a one-stop regulatory platform for banks to confirm that relevant risk management measures have been fully implemented before the full launch of DLT projects. Through the platform, banks can communicate with the HKMA's dedicated team and obtain regulatory advice, and can also choose to conduct real-world testing as needed to verify and improve risk management measures in a pragmatic and evolving manner. The Incubator will also launch a series of targeted measures to promote the banking industry's awareness and understanding of DLT risk management best practices, including regulatory guidelines, industry sharing sessions and forward-looking research projects. These projects will help enhance the banking industry’s ability to introduce DLT solutions in the long run.