Hong Kong Monetary Authority launches regulatory sandbox to assist banks in developing distributed ledger technology.

The Hong Kong Monetary Authority announced the launch of the Distributed Ledger Technology (DLT) Supervisory Sandbox to assist banks in responsibly exploring the potential of DLT. The Sandbox is a new regulatory arrangement designed to help banks fully leverage the potential of DLT and effectively manage related risks. It will enhance the risk management capabilities of individual banks and the overall banking industry, especially in managing risks that may arise when banks offer services involving both DLT banking infrastructure and traditional banking infrastructure (such as deposits and loans). Tokenized deposits, which have been of interest to the industry, will be a key focus area following the launch of the Sandbox. For individual banks, the Sandbox will provide a one-stop regulatory platform, allowing banks to confirm that relevant risk management measures are fully implemented before launching DLT projects. Through the platform, banks can communicate with the HKMA's dedicated team and receive regulatory advice, as well as choose to conduct real-world testing as needed to validate and improve risk management measures in a practical and ongoing manner. The Sandbox will also introduce a series of measures to promote awareness and understanding of best practices in DLT risk management in the banking industry, including regulatory guidance, industry sharing sessions, and forward-looking research projects. These initiatives are expected to enhance the banking industry's ability to implement DLT solutions over the long term. Arthur YUEN, Deputy Chief Executive of the HKMA, stated that as the banking industry continues to evolve, it is necessary to provide an environment that supports innovation. The HKMA encourages banks to develop secure, efficient, and industry-wide DLT solutions that benefit not only the industry but also society as a whole, with the DLT Supervisory Sandbox being an important part of this strategy.