Key Takeaways
- In recent years, Hong Kong has been actively building a comprehensive legal and regulatory framework to support the responsible institutional adoption of digital assets, with a view to positioning the city as a leading global Web3 hub.
- Supported by this regulatory tailwind, institutional interest in digital assets continues to drive product innovation in the city, creating a flywheel of adoption and innovation. However, given the relative immaturity of the market, material challenges remain - particularly in relation to security, operational resilience, and compliance expectations. This reinforces the pivotal role of digital asset custody as a foundational enabler of institutionalisation.
- To explore the state of digital asset custody in Hong Kong, our report surveyed 65 leading buy- and sell-side institutions, providing insight into market readiness, adoption perspectives, and evolving priorities:
- Digital Asset Market Context in Hong Kong: 77% of financial institutions we surveyed in Hong Kong have either already adopted digital assets or are actively planning to do so, with key interest areas including stablecoins, tokenised traditional assets, and crypto asset ETFs. 72% of all respondents expressed a strong interest in participating in tokenisation, and 58% indicated the same for cryptocurrencies - reflecting increasing institutional interest and participation alongside policy momentum from local regulators.
- Institutional Adoption Hurdles in Hong Kong: Despite growing institutional interest, several factors continue to keep some firms on the sidelines, such as technology and infrastructure gaps, business risks, cybersecurity risks and regulatory uncertainty. In particular, security stands out as a primary concern, especially in light of notable hacks in recent years.
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The Need for Digital Asset Custody for Institutional Adoption: At the heart of any initiative for addressing the security needs of digital assets is custody, which acts as the foundational layer underpinning all digital asset use cases and powers three core capabilities:
- Security: Private key management systems and vault configuration for safekeeping;
- Compliance: Programmable governance / policy engine and comprehensive reporting tools for compliance oversight; and
- Interoperability: API gateways for interoperability with both internal and external systems
- Available Digital Asset Custody Options: To that end, financial institutions may adopt either a self-managed custody model (i.e., building in-house capability and directly managing private keys, with full control over access and the execution of digital asset operations) or a third-party custody model (i.e., delegating custody responsibilities to regulated digital asset custodians).
- Hong Kong Market Preference: Based on our research, financial institutions in Hong Kong show a clear preference for third-party custody (65%), driven by a desire to reduce operational burden, address internal expertise and resource constraints, and maintain focus on core business operations.
- Mismatch between Market Demands and Available Solutions: Despite this preference, survey respondents highlighted a clear market gap across the third-party custody options offered by bank-affiliated, exchange-affiliated, and independent custodians. As such, many institutions either take a “wait-and-see” approach that slows down institutional uptake or adopt custody models on a “case-by-case basis” depending on the market and regulatory context across different jurisdictions.
- Multi-custody Orchestration: To address this impasse, multi-custody orchestration solutions have gained traction. These solutions provide a unified interface for centralised management of digital asset custody operations, offering a balanced middle ground that enables institutions to explore and adopt different custody models while addressing challenges such as regulatory risk exposure, fragmented infrastructure, and misaligned governance and policy frameworks.
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Next Steps for Financial Institutions in Hong Kong: As partnerships remain the preferred approach for acquiring digital asset custody capabilities, financial institutions must carefully assess whether potential vendors can enable them to achieve four key objectives:
- Building a robust digital asset custody foundation;
- Defending against external and internal threats;
- Enforcing access, governance, policy, and execution control; and
- Enabling operational flexibility and scalability
