Hong Kong issues rules for asset tokenization as interest mounts
The Securities and Futures Commission (SFC) of Hong Kong has issued two circulars to regulate digital asset tokenization.
The circulars offer instructions to intermediaries participating in tokenized securities activities and outline the criteria for tokenizing investment products authorized by the SFC.
The SFC considers tokenized securities as traditional securities with a tokenization layer. As a result, the exact legal and regulatory requirements that apply to conventional securities markets also apply to tokenized securities.
The regulator specified that tokenized securities offerings must adhere to the Companies Ordinance’s Prospectus Regime and the Securities and Futures Ordinance on offers of investment. Additionally, intermediaries providing advice on tokenized securities, managing tokenized funds, and facilitating secondary market trading on virtual asset trading platforms must comply with the existing conduct requirements for securities-related activities.
The recent guidance from the regulator coincides with Hong Kong’s exploration of tokenization. In February, the Hong Kong Monetary Authority issued the world’s inaugural tokenized green bond, raising approximately $100 million.
The circular also states that trading platforms with licenses must establish SFC-approved compensation arrangements to safeguard against potential security token losses. To illustrate, operators of cryptocurrency trading platforms can show their adoption of protective measures like transfer restrictions or whitelisting to ensure the security of tokenized securities.
Related: JPEX scandal won’t hurt Hong Kong crypto vision: Financial Secretary
Conversations about tokenization have recently surged, and the SFC noted a heightened
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