Nikolas Sargeant
Hong Kong's Securities and Futures Commission has implemented sweeping new cryptocurrency custody standards that immediately ban the use of smart contracts in cold wallet implementations. The regulatory guidance, released Friday and effective immediately, introduces comprehensive security requirements for all licensed virtual asset custodians operating in the territory.
The new rules mandate that licensed custodians maintain certified hardware security modules, implement 24/7 security operations centers, and restrict withdrawals exclusively to whitelisted addresses. Private keys must be generated and stored offline in air-gapped environments with strict multi-factor physical access controls, representing some of the most stringent custody requirements globally.
The prohibition on smart contracts in cold storage marks a significant departure from industry practices, where major custodians like BitGo and Safe have built their operations around programmable smart contract solutions. Industry experts note this creates a trade-off between minimalist attack surfaces and the functionality of programmable wallets, with Hong Kong prioritizing security over advanced features.
These regulatory changes position Hong Kong as Asia's emerging crypto hub while potentially creating barriers for smaller market players due to increased compliance costs. The territory continues expanding its crypto framework with recent Bitcoin and Ethereum ETF approvals and a comprehensive stablecoin regime that became effective August 1, 2025.
