Hong Kong issues strict new crypto custody rules for cold wallets

Hong Kong has introduced strict crypto custody rules, banning smart contracts for cold wallets and tightening security standards for custodians.

The Hong Kong Securities and Futures Commission (SFC) issued immediately effective guidance on cryptocurrency custody standards, introducing sweeping security requirements and a ban on smart contracts in cold wallet implementations.

In a circular released on Friday, the regulator outlined prescriptive controls for licensed custodians of virtual assets. They include requiring a certified hardware security module, allowing withdrawals only to whitelisted addresses and maintaining a 24/7 security operations center to monitor systems, networks, wallets and infrastructure.

The environment where private keys are used to sign transactions should also be air-gapped and physically secured, with keys being generated and kept offline. The regulator recommended “strict multi-factor physical access control.”

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