As part of its ambitions to become the premier Web3 hub in Asia, Hong Kong’s Securities and Futures Commission (SFC) has issued two circulars to govern the tokenization of digital assets. The circulars describe the requirements for tokenizing investment products approved by the SFC and offer advice to intermediaries engaged in tokenized securities transactions. Tokenized securities are subject to the same legal and regulatory requirements as conventional securities markets, as they are regarded by the regulator as regular securities with a tokenization layer.
Tokenized securities offerings, according to the SFC, must abide by the securities and futures ordinance’s offers of investments and the companies ordinance’s prospectus requirements. The current conduct standards for securities-related operations must be adhered to by intermediaries that manage tokenized funds, advise on tokenized securities, and assist secondary market trading on virtual asset trading platforms. Hong Kong is investigating the current guidelines at the same time as tokenization. The first tokenized green bond in history was issued by the Hong Kong Monetary Authority in February, raising about $100 million.
The circular states that in order to guard against any security token losses, licensed trading platforms must set up compensation plans that have been authorised by the SFC. To guarantee the security of tokenized assets, owners of cryptocurrency trading platforms, for instance, might show that they have implemented security measures like transfer limits or whitelisting. The SFC has observed a rise in the desire of financial institutions operating in international financial markets to tokenize conventional financial assets. The regulatory body is considering a number of suggestions pertaining to the primary offering and secondary trading of tokenized goods on SFC-licensed virtual asset trading platforms, as well as ideas to tokenize investment products authorised by the SFC. The SFC is mindful of the additional dangers associated with deploying this technology, but it also acknowledges the potential advantages of tokenization for the financial markets, including improved efficiency, better transparency, shortened settlement times, and cheaper costs.