Hong Kong Banking

Hong Kong Bank ZA Introduces Custody Services for Stablecoin Providers

9 April 2024

In a groundbreaking initiative, ZA Bank started to revolutionise the Hong Kong banking system with the introduction of specialised banking services aimed at stablecoin issuers. This initiative comes as part of Hong Kong’s efforts to position itself as a digital asset hub, leveraging the burgeoning web3 economy.

Devon Sin, the Alternate Chief Executive of ZA Bank, revealed that the virtual lender is in discussions with five to eight potential stablecoin issuers regarding the establishment of accounts to safeguard the cash reserves backing these tokens. These cash custody accounts will be provided once the issuers obtain approval from the Hong Kong Monetary Authority (HKMA) regulatory sandbox. 

What is Needed to Receive the HKMA Green Light?

To determine briefly, HKMA regulatory reporting refers to the requirement established by the HKMA and the Securities and Futures Commission (SFC) of Hong Kong for firms to submit details of their derivatives transactions to the HKMA trade repository. 

The HKMA provides guidance to assist banks in balanced and proportional application of the risk-based approach, whose three guiding principles: risk differentiation, proportionality, and that this is not a “zero failure” regime, apply equally to the asset and wealth management businesses of private banks.

Booming Stablecoins

The move underscores ZA Bank’s commitment to supporting the anticipated stablecoin boom in the region. Sin emphasised the diverse use cases of stablecoins, spanning from wholesale and retail markets to tokenisation and remittance settlements. He expressed eagerness to collaborate with potential issuers to explore real-world applications for stablecoins.

Stablecoins, typically pegged 1-to-1 to fiat currency, require secure reserves to maintain their value. ZA Bank’s tailored banking services aim to address the challenges faced by stablecoin issuers in administering these reserves, thereby promoting growth and stability within the web3 economy.

This initiative builds upon ZA Bank’s existing engagement with the Web3 sector. The bank facilitated over $1 billion in transfers for more than 100 Web3 clients in 2023, signalling its strong foothold in the digital asset industry.

In addition to cash custody accounts, ZA Bank will offer a suite of banking services, including fund transfers, payroll administration, and various deposit options tailored for stablecoin issuers. These services aim to streamline operations and foster the widespread adoption of stablecoins in Hong Kong’s augmenting financial landscape.

Furthermore, ZA Bank is exploring the possibility of custodying virtual assets, including stablecoins, and evaluating the infrastructure needed to support such undertakings. This highlights the bank’s commitment to driving innovation and providing comprehensive solutions to meet the growing needs of the digital asset industry.

The introduction of specialised banking services for stablecoin issuers aligns with Hong Kong’s broader regulatory framework for digital assets. The government announced plans to require licenses for stablecoin issuers, ensuring the complete support of circulating stablecoins with reserves equal to or exceeding the par value. 

“We are supportive of financial innovation and believe that it is essential to put in place the necessary regulatory guardrails and standards to enable the long-term, sustainable and responsible development of the virtual asset ecosystem,” HKMA CEO Eddie Yue stated

Final Remarks

ZA Bank continues to lead innovation in the Hong Kong banking sector. Its latest initiative underscores the pivotal role of virtual banks in shaping the future of finance. With a focus on supporting stablecoin issuers and fostering web3 adoption, Hong Kong will definitely become a regional crypto hub. 

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