Hong Kong Clarifies Path for Regulated VA Staking by Banks and Platforms
Hong Kong’s digital asset landscape took a significant step forward on April 7, 2025, as its key financial regulators provided guidance clarifying the path for regulated entities to offer Virtual Asset (VA) staking services. The Securities and Futures Commission (SFC) released a circular detailing how licensed Virtual Asset Trading Platforms (VATPs) can now provide staking by modifying existing licensing conditions, marking an update to its previous guidelines which did not permit such arrangements. Concurrently, the Hong Kong Monetary Authority (HKMA) published its expectations for Authorized Institutions (AIs – banks and their subsidiaries) wishing to engage in VA staking from custodial services. This development formally paves the way for yield-generating VA activities within Hong Kong’s regulated financial sector. For all players in the FinTech, RegTech, and financial services space, understanding this evolving dual regulatory approach is crucial.
📖 Ref: HKMA (2025). Provision of Staking Services for Virtual Assets from Custodial Services
📖 Ref: SFC (2025). Circular on staking services provided by virtual asset trading platforms
A Unified Foundation: Core Principles for Staking Operations
Despite regulating different entity types, both the SFC and HKMA lay down remarkably consistent foundational requirements for offering staking services. This signals a clear, harmonized vision for responsible operation:
- Unyielding Control Over Assets: Both regulators mandate that institutions maintain decisive control over the means to withdraw client VAs from staking (e.g., holding necessary private keys and pre-signed messages). This underscores the paramount importance of safeguarding client assets and ensuring the institution can act decisively to protect them. Notably, the SFC explicitly prohibits VATPs from using third-party custodians for staked assets, reinforcing the need for direct control within the licensed entity’s environment.
- Robust Internal Frameworks: Strong internal controls are non-negotiable. Both circulars demand effective policies to prevent errors, manage the unique operational risks of blockchain (like finality issues or validator performance), address potential conflicts of interest, and ensure staked assets are adequately safeguarded. Clear operational rules governing the staking service are a baseline expectation.
- Deep Due Diligence is Essential: Institutions cannot simply enable staking for any VA or use any provider. Both HKMA and SFC require rigorous due diligence on the underlying blockchain protocols themselves – assessing their stability, security, and suitability. Furthermore, if any part of the staking process involves a third-party service provider (like a validator), thorough initial and ongoing due diligence on that provider’s track record, technology, security, and risk mitigation is mandatory. This demands a sophisticated blend of technical and operational assessment capabilities.
Transparency Elevated: Communicating Complex Staking Realities
A core theme across both circulars is the need for radical transparency with clients. Generic disclosures won’t cut it. Institutions must provide detailed information about their staking services, including:
- Supported VAs, fees, lock-up periods, and unstaking procedures (including timelines).
- Crucially, clear explanations of the additional risks clients face with staking. Both regulators highlight specific dangers like slashing (penalties on staked assets), technical bugs in the blockchain, hacking vulnerabilities, validator inactivity, and the legal uncertainty surrounding the precise nature and enforceability of a client’s interest in staked VAs.
This level of detailed risk disclosure necessitates robust communication strategies capable of translating complex technical and legal nuances into understandable client information.
Navigating the Regulatory Gateway: Approval and Oversight
While the core principles align, the pathways for approval differ slightly, reflecting the distinct supervisory approaches for banks and crypto platforms:
- SFC (VATPs): Requires prior written approval from the SFC before offering staking services. The SFC will impose specific licensing conditions (detailed in an Appendix to their circular), formally modifying the previous prohibition on such activities.
- HKMA (AIs): Requires AIs to discuss their plans, systems, and controls with the HKMA in advance of launching services. The HKMA also encourages leveraging its “Supervisory Incubator for DLT” for testing purposes.
This highlights a coordinated but tailored regulatory engagement process, emphasizing preparedness and dialogue before market entry.
The Strategic Imperative: Compliance as an Enabler
This coordinated regulatory green light for VA staking by both the SFC and HKMA is more than just new rules; it’s a structural evolution of Hong Kong’s financial landscape. It standardizes expectations and provides a pathway for regulated entities to meet growing client demand for VA yield generation. However, the stringent requirements around control, risk disclosure, and due diligence underscore that this is not a simple plug-and-play addition. It demands significant investment in technology, processes, and compliance expertise.
Successfully launching and managing compliant VA staking services requires navigating this complex intersection of technology, finance, and multi-faceted regulation. Studio AM possesses the deep expertise in CaaS and regulatory intelligence to guide financial institutions, FinTech innovators, and RegTech providers through this evolving terrain. We help organizations build the robust compliance frameworks and operational resilience needed to confidently capitalize on these new opportunities, ensuring alignment with both HKMA and SFC expectations where applicable.
The future of regulated digital asset services in Hong Kong is taking shape. Partner with Studio AM to ensure your strategy is built on a foundation of compliance excellence.
Ready to explore the potential of VA staking within Hong Kong’s new regulatory framework? Contact Studio AM today.
