The Hong Kong Monetary Authority (HKMA) will allow banks to explore permissionless blockchain and DLT networks as part of its efforts to embrace Web3 industry innovation.
The applications and use cases of blockchain and DLT technology are vast, holding enormous potential to transform financial markets and other important sectors of our society.
In line with the above, the Hong Kong Monetary Authority (HKMA) has recently authorized banks in the special administrative region of China to explore the potential of these technological innovations.
While the HKMA has issued a statement urging banks and financial institutions to consider the risks associated with public blockchains in advance, it acknowledged the obvious benefits of their implementation, especially in relation to the asset tokenization.
The release, which was published last week, the monetary authority said it was in favour of adopting public blockchain and DLT-based solutions, provided that the associated risks can be managed appropriately. The authority also stressed that Institutions have a great interest in the blockchain and that this has been increasing since the publication of the political declaration on the development of virtual assets in the region in 2022.
The next generation of financial services based on blockchain and DLT
The adoption of technological innovations such as blockchain and DLT can lead to a new generation of more useful, efficient and secure financial services in Hong Kong. Therefore, the monetary authority of the region is urging banks and financial institutions to study the use of blockchain in sectors such as tokenization, a term that has become quite popular in the crypto industry in recent years, but which beyond representing a fad, advances the digital transformation of the assets we know.
Through tokenization, banks and institutions can take a new approach to asset ownership and trading, as it allows physical assets to be digitized on the blockchain, turning them into tokens that are easier to manage and trade.
Hong Kong drives the growth of tokenization
According to the HKMA, Hong Kong banks and financial institutions will be able to consider accepting tokenized deposits. However, it believes it is useful to encourage assessment of the associated risks and provide greater clarity on the key risk management considerations it takes into account when reviewing entities’ proposals related to the use of blockchain and DLT technologies, in order to ensure appropriate safeguards are adopted in relation to the interests of investors and consumers. Currently, these considerations are more focused on products and activities that are receiving the most attention and interest from the market, such as tokenized assets and interoperability, the HKMA said.
For Hong Kong regulator, on-chain asset tokenization can significantly improve the efficiency and transparency of transactions, in addition to increasing accessibility and security.
In February, Hong Kong's financial secretary, Paul Chan, stressed the importance of new technologies in accelerating innovation and digital transformation of the economy in the region. According to Chan, tokenized assets can provide users with less expensive, more inclusive and more convenient services, making it one of the HKMA’s main areas of focus in the Web3 industry.
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