Hong Kong-based virtual insurer OneInfinity announced last Wednesday (September 6) its signing of a memorandum of understanding (MoU) with Hashkey Exchange, Hong Kong’s licensed retail virtual asset exchange.
Under the MoU, OneInfinity, under OneDegree, and Hashkey will work together on hot and cold wallet insurance solutions, making related security measures available to Hashkey’s users. The two parties will also look into consumer and operational data to co-develop tech-based digital asset insurance solutions.
“The two teams have devoted personnel to regularly review potential risks, and see if we can use insurance as a potential way to address them,” Alvin Kwock, co-founder of OneInfinity said in an interview with FinanceAsia.
“We won’t stop with hot and cold wallet solutions as required by the regulators, but [we would] really look at it from a customer’s standpoint to see what needs to be done.”
“By partnering with OneInfinity, client funds are protected by comprehensive insurance in respect of HashKey Exchange’s wallet infrastructure, both hot and cold, safeguarding client assets in the event of any unforeseen circumstances,” a spokesperson from Hashkey said.
Regulatory pioneer
Hong Kong’s Securities and Exchange Commission (SFC) stated in its position paper on the regulation of virtual asset trading platforms that a platform operator should have an insurance policy at hand, covering the risks “associated with custody of virtual assets in effect at all times”.
In the November 2019 rules, custody of virtual assets in hot wallets should receive full insurance coverage, and those in cold wallets should be covered substantially at a guiding rate of 95%.
In June this year, SFC refined its guidelines to require an approved compensation arrangement that covers potential loss of 50% of virtual assets stored in cold wallets and all of those kept in hot wallets.
Under the new rules, qualified compensation arrangements include services from third-party insurance providers, platform operators’ funds or virtual assets, and bank guarantee provided by authorised Hong Kong financial institutions.
Hong Kong was one of the first jurisdictions to put digital asset insurance requirement in place, Kwock said.
“In terms of consumer protection, Hong Kong is one of the top leaders out there,” he said.
With the increased awareness of the importance of digital asset risk management, global jurisdictions including Dubai, Singapore and the European Unions have started to put similar regulations in place in recent years.
“Luckily, not too many people in Hong Kong suffered from those huge adverse Web3 events,” he said, referring to crises like FTX and Three Arrows Capital. “But we are taking a step further in putting those protection measures in place.”
“Battlefield shift”
OneInfinity announced today (September 12) its partnership with digital crowdsourcing and consumer-to-business (C2B) platform Reimagine CyberBay Limited. The two parties agreed to enhance insurance solutions to boost protection against cybersecurity threats.
Another similar partnership is expected this week, FA has learned.
When the SFC issued the position paper back in 2019, the digital asset landscape in Hong Kong was not as vibrant as it is today, Kwock said.
“It really started to take off in the second half of 2022,” he said. “I think the battlefield has really shifted from Web2 to Web3 because a lot of assets are moving here.”
The Web3 world now accommodates over $1 trillion worth of assets globally, which naturally leads to increased hacking activities, he explained.
“As virtual assets steadily progress toward mainstream acceptance, the role of fiat on-and-off ramps becomes increasingly pivotal. These ramps serve as the bridge between traditional finance and digital assets, forming the cornerstone for the widespread adoption of cryptocurrencies and the transition to Web3,” Hashkey Exchange’s spokesperson said.
OneInfinity started offering digital asset insurance services in 2021, and remains Hong Kong’s first and only provider. The firm now serves more than a dozen clients, supporting them with its pioneering tech-based digital asset insurance services.
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