HKMA Launches Supervisory Incubator for Distributed Ledger Technology

On 8 January 2025, the Hong Kong Monetary Authority (HKMA) introduced the Supervisory Incubator for Distributed Ledger Technology (the Incubator) to support banks in responsibly harnessing the transformative potential of distributed ledger technology (DLT).

A New Supervisory Framework for DLT Adoption
The Incubator is designed to help banks maximize the benefits of DLT adoption while effectively managing associated risks. By strengthening risk management at both the individual bank and industry levels, it aims to address potential challenges as banks integrate DLT-based solutions into traditional banking infrastructures, such as deposits and loans.

One of the Incubator’s primary focuses at launch will be tokenized deposits, an area of growing interest within the banking sector.

A One-Stop Supervisory Platform for Banks
For individual banks, the Incubator will serve as a dedicated supervisory platform, allowing them to assess and refine their risk management controls before fully rolling out DLT-based initiatives. Through this platform, banks will have access to:

Direct supervisory feedback from the HKMA.
Live trials to test and improve risk management measures using an iterative, hands-on approach.
Industry-Wide Best Practices and Research
Beyond individual bank support, the Incubator will foster industry-wide awareness of best practices in DLT risk management through initiatives such as:

Supervisory guidance on risk and compliance.
Industry-sharing sessions to facilitate knowledge exchange.
Forward-looking research projects on emerging DLT applications.
These efforts will strengthen the banking sector’s overall readiness to adopt DLT-based solutions safely and effectively.

Driving Innovation in Banking
As the banking industry evolves, fostering innovation within a well-regulated environment is critical. The Supervisory Incubator for DLT is a key component of the HKMA’s strategy to promote secure, efficient, and impactful DLT adoption for the financial sector and the wider community.

Launch at FiNETech4
The HKMA announced the Incubator’s launch at FiNETech4, the fourth edition of its signature FiNETech series, which brought together over 300 industry professionals from banking, securities, insurance, pension funds, and technology sectors. The event explored how DLT can drive progress in transaction efficiency and data utilization across financial services.

Launched in April 2024, the FiNETech series is a cornerstone of the HKMA’s fintech strategy. It is supported by financial regulators, industry associations, and technology communities and powered by market experts, reinforcing Hong Kong’s position as a global leader in financial innovation.