The Hong Kong Monetary Authority (HKMA) is advancing a significant step in aligning its banking regulations with global standards by introducing comprehensive rules for banks holding crypto assets—including real-world assets (RWA), stablecoins, and cryptocurrencies like Bitcoin. These proposed regulations, based on the Basel Committee on Banking Supervision’s Prudential Treatment of Cryptoasset Exposures (SCO60), aim to ensure financial stability while fostering responsible innovation in the digital asset space.
Scheduled for implementation on January 1, 2026, the new framework will integrate into Hong Kong’s existing Banking (Capital) Rules (Cap. 155L) and Banking (Disclosure) Rules (Cap. 155M). This marks a pivotal moment for the region's ambitions to become a leading global hub for tokenized finance and virtual asset services.
Background: Global Standards Meet Local Regulation
As a member of the Basel Committee, the HKMA is committed to implementing internationally recognized prudential standards locally. The Basel Committee released its initial guidance on cryptoasset exposures in December 2022, with subsequent updates refining the risk-based approach to bank-held digital assets. The latest version of SCO60 introduces a structured classification system and capital requirements tailored to the unique risks posed by crypto assets.
Hong Kong’s proposed amendments reflect this global consensus. In January 2025, the HKMA launched a consultation on these draft revisions, signaling its intent to maintain regulatory parity with international peers while adapting the framework to local market conditions.
This alignment ensures that Hong Kong-incorporated banks can safely engage with emerging digital finance opportunities—such as tokenized securities, stablecoin reserves, and RWA-backed instruments—without compromising capital adequacy or systemic resilience.
👉 Discover how leading institutions are preparing for crypto-ready banking under new global standards.
Defining Crypto Assets and Risk Exposures
Under the proposed rules, a cryptoasset is defined as a private digital asset primarily relying on cryptography and distributed ledger technology (DLT). Notably, the HKMA has broadened the definition slightly compared to the Basel standard by omitting the term “private,” allowing for future inclusion of central bank digital currencies (CBDCs), which the Basel Committee continues to evaluate separately.
A cryptoasset exposure includes both on-balance-sheet and off-balance-sheet positions—direct, indirect, or consolidated—that expose banks to one or more crypto assets. This wide scope captures complex arrangements such as repo transactions, synthetic exposures, and off-ledger commitments, ensuring comprehensive risk oversight.
Banks must conduct ongoing assessments of their exposures and maintain detailed records to demonstrate compliance. Regulatory scrutiny may require disclosure of classification rationale, risk mitigation strategies, and third-party audits.
The Four Classification Criteria for Crypto Assets
To determine regulatory treatment, all crypto assets must meet four core classification conditions. These apply particularly to Group 1 assets, which include tokenized traditional assets and qualified stablecoins.
Criterion 1: Stable Value Mechanism or Tokenized Traditional Assets
An asset qualifies if it is either:
- A tokenized version of a traditional asset (e.g., bonds, equities) with equivalent credit and market risk profiles; or
- A stablecoin with a robust mechanism linking its value to a reference asset (e.g., fiat currency, gold).
For stablecoins, this includes passing the "redemption risk test", which requires:
- Reserve assets’ net value ≥ total outstanding tokens’ peg value at all times (even under stress);
- Reserves composed of low-risk instruments (especially for fiat-pegged tokens);
- Transparent governance, regular public disclosures, and annual independent audits.
Stablecoins pegged to other crypto assets do not qualify under this criterion.
Criterion 2: Legal Certainty and Settlement Finality
All rights, obligations, and interests arising from the cryptoasset arrangement must be legally enforceable across all jurisdictions involved in issuance and redemption. The legal framework must guarantee finality in both primary and secondary market settlements.
This means stablecoin holders must have strong legal claims over issuers or underlying reserves, and redemption processes must be clearly documented—including who can redeem, when, how, and what assets are delivered.
Criterion 3: Operational Resilience and Network Integrity
The cryptoasset and its underlying network must be designed to mitigate operational risks. Key requirements include:
- No material risk to transferability, settlement finality, or redeemability;
- Clearly defined network architecture, including node roles, access controls, consensus mechanisms, and participant traceability.
This criterion emphasizes transparency and accountability in decentralized systems—critical for institutional adoption.
Criterion 4: Regulated Entities and Governance
All entities involved in redemption, custody, settlement, or reserve management must be:
- Subject to supervision by a recognized regulator; or
- Comply with robust risk management standards.
This covers wallet providers, custodians, settlement operators, and stablecoin managers. Even validators in permissionless networks may satisfy this through adherence to formal risk frameworks.
Crypto Asset Classification Framework
Based on these criteria, crypto assets are classified into four groups:
Group 1a: Tokenized Traditional Assets
These are digital representations of conventional financial instruments (e.g., tokenized bonds or equities) with identical risk profiles. Capital requirements mirror those of their non-tokenized counterparts—unless the bank uses the basic credit risk method.
💡 Exception: Only tokenized debt issued by Hong Kong’s government or designated public sector entities receive favorable treatment under the basic method. All other Group 1a assets face a 1,250% risk weight if held by such banks.
Only tokenized versions of assets listed in the Banking (Capital) Rules Schedule 79–80 can serve as eligible collateral for credit risk mitigation.
Group 1b: Qualified Stablecoins
These include stablecoins with effective peg mechanisms meeting all four classification criteria. Despite uniform eligibility, capital treatment varies based on structure:
- Reference asset risk: Capitalized as if holding the underlying asset directly.
- Redemption counterparty risk: Requires capital unless reserves are held in a bankruptcy-remote SPV with legal opinions confirming segregation.
- Intermediary risk: Additional capital if only select members can redeem.
Importantly, Group 1b assets cannot be used as collateral.
👉 See how top-tier stablecoins are adapting to meet upcoming regulatory thresholds.
Group 2a: Other Crypto Assets with Recognizable Risk Profiles
Includes unclassified but identifiable digital assets (e.g., some utility tokens). Capital requirements follow a simplified standardized approach.
For systemically important banks (SIBs), total exposure to Group 2 assets is capped at 2% of Tier 1 capital, with a floor of 1%:
- Exceeding 1%: Only the excess faces a 1,250% risk weight.
- Exceeding 2%: The entire exposure incurs a 1,250% risk weight.
This tiered penalty discourages excessive concentration while allowing limited experimentation.
Group 2b: High-Risk Crypto Assets
Covers volatile or structurally opaque assets like meme coins or privacy-focused cryptocurrencies. For each holding:
- Apply a 1,250% risk weight to the larger of total long or short positions.
- All new or unclassified crypto assets must initially be treated as Group 2b until formally reclassified by the HKMA.
Banks cannot self-certify classifications—the HKMA retains authority to review and override decisions.
Special Considerations: Permissionless Blockchains
While not explicitly barred, the HKMA aligns with the Basel Committee’s stance that crypto assets issued on permissionless blockchains generally fail to meet Group 1 criteria due to:
- Limited ability to conduct due diligence;
- Unpredictable network behavior;
- Challenges in enforcing legal claims.
Though some industry groups argue that proper governance can mitigate these risks, regulators remain cautious. Until technological or legal safeguards evolve, most DeFi-native assets will likely remain outside preferential treatment.
Implications for Banks and Market Participants
These rules will reshape how banks approach digital assets:
- Increased compliance burden: Ongoing classification reviews and documentation.
- Capital efficiency: Only well-structured tokenized assets and stablecoins offer favorable treatment.
- Strategic positioning: Early movers in compliant RWA and stablecoin ecosystems gain competitive advantage.
Banks must now build internal frameworks for continuous monitoring, legal validation, and stress testing of crypto holdings.
Frequently Asked Questions (FAQ)
Q: When will the new crypto asset rules take effect in Hong Kong?
A: The HKMA plans to implement the revised regulations on January 1, 2026, in line with the Basel Committee timeline.
Q: Can banks use stablecoins as collateral under the new rules?
A: No. Under Group 1b classification, stablecoins cannot be used as eligible credit risk mitigation instruments.
Q: Are all stablecoins treated equally under the framework?
A: No. Only those passing strict tests around reserves, legal enforceability, network design, and regulatory oversight qualify for Group 1b status.
Q: What happens if a bank misclassifies a crypto asset?
A: The HKMA has the authority to override any classification. Misclassified assets may be reclassified as Group 2b (1,250% risk weight), increasing capital costs significantly.
Q: Do these rules apply to all banks in Hong Kong?
A: Most provisions apply universally, but the 2% exposure limit for Group 2 assets applies only to systemically important banks (SIBs).
Q: How does Hong Kong’s approach compare globally?
A: Hong Kong is closely aligned with Basel standards, similar to EU’s MiCA framework and evolving U.S. regulatory discussions—positioning it as a bridge between East and West in digital finance regulation.
Looking Ahead: A Regulated Future for Digital Finance
Hong Kong’s move underscores its commitment to building a safe, innovative virtual asset ecosystem. By integrating RWA tokenization, stablecoin regulation, and Bitcoin-related exposures into a coherent prudential framework, the city strengthens its position as Asia’s premier fintech hub.
As implementation nears, financial institutions must prioritize compliance readiness—from internal policy updates to third-party audits. Those who act early will not only avoid penalties but also unlock new revenue streams in tokenized finance.
With clear rules on the horizon, Hong Kong is setting the stage for a new era of trusted digital finance—where innovation thrives within robust guardrails.