April 19, 2024
Hong Kong SFC's Guidelines for Tokenized Investment Products
Latest Cryptocurrency News

Hong Kong SFC Sets Standards for Tokenized Securities in Latest Circular Release

The Securities and Futures Commission (SFC) of Hong Kong announced the business requirements for offering tokenized securities and other investment products in a circular unveiled on November 2.

The decision to issue guidelines on tokenizing the securities and futures markets was driven by the increasing demand for tokenized investment products in Hong Kong, in conjunction with the manifold advantages offered by blockchain technology. The circular extensively outlines 12 points, placing particular emphasis on four key aspects—tokenization arrangement, disclosure, intermediaries, and staff competence—that determine eligibility for engaging in tokenized securities-related activities.

The motivation behind tokenizing SFC-authorized investment products is associated with growing market demand and the government’s commitment to nurturing market development. The SFC articulated that if the underlying product complies with all relevant product authorization requirements and additional safeguards to mitigate risks, they find it appropriate to permit the primary dealing of tokenized SFC-authorized investment products, following a transparent approach. Providers are mandated to take full accountability for their tokenized products, ensuring robust record-keeping and operational stability, among other factors. Notably, the SFC cautioned against the use of public-permissionless blockchain networks without adequate controls.

In terms of disclosure obligations, providers must explicitly disclose whether settlements occur off-chain or on-chain and consistently demonstrate token ownership. Furthermore, the SFC stipulates that providers must have at least one competent staff member with the necessary experience and expertise to oversee the tokenization arrangement and effectively manage new risks related to ownership and technology.

Despite governmental endeavors to tokenize investment products, local interest in cryptocurrencies in Hong Kong has notably waned. 

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