The Hong Kong Monetary Authority (HKMA) announced the launch of the Supervisory Incubator for Distributed Ledger Technology (DLT) on 8 January 2025. This initiative aims to support banks in responsibly harnessing the transformative potential of DLT, fostering innovation while ensuring prudent oversight.
The Incubator is a newly introduced supervisory framework designed to help banks harness the full potential of Distributed Ledger Technology (DLT) by effectively mitigating the associated risks.
By strengthening risk management capabilities at individual banks and across the broader industry, this initiative aims to address challenges that may arise as banks transition to offering production-ready services—such as deposits and loans—spanning both DLT-based and traditional banking infrastructures.
A key focus at the Incubator’s launch will be tokenised deposits, a concept that has garnered significant interest from the industry for real-world implementation.
The Incubator provides a comprehensive supervisory platform designed to help individual banks ensure the robustness of their risk management controls before fully launching a DLT-based initiative. Through this platform, banks gain access to a dedicated team from the HKMA, offering supervisory feedback tailored to their needs.
Additionally, banks can conduct live trials to test and fine-tune specific elements of their risk management frameworks. This hands-on, iterative approach allows institutions to validate their controls while refining their implementation for optimal effectiveness.
The HKMA supervisory incubator aims to enhance industry awareness and understanding of best practices in DLT risk management through targeted initiatives such as supervisory guidance, knowledge-sharing sessions, and forward-thinking research projects.
Together, these efforts will strengthen the industry’s capacity and preparedness to implement DLT-based solutions effectively over the long term. Arthur Yuen, Deputy Chief Executive of the HKMA, said,
“As the banking industry continues to evolve, it is essential that we provide a supportive environment for innovation to thrive. The Supervisory Incubator for DLT is a key component of our strategy to foster the development of DLT-based banking solutions that are safe, efficient, and beneficial to the industry and the wider community.”
The HKMA unveiled the Incubator during the fourth edition of the FiNETech series (FiNETech4), an event that brought together over 300 professionals from the banking, securities, insurance, mandatory provident fund, and technology sectors.
The focus was on exploring how Distributed Ledger Technology (DLT) can revolutionise the financial industry, enhancing transaction efficiency and information utilisation.
Launched in April 2024, the FiNETech series is a flagship initiative of the HKMA aimed at driving fintech adoption across the financial sector. It is supported by financial regulators, industry associations, and technology communities, with insights and expertise provided by market leaders.
More information on the initiative can be found here.
Source of image: Edited from Freepik