- Hong Kong securities watchdog has issued guidelines on tokenization.
- Tokenized securities-related activities to follow some rules.
- The regulator heralded the potential of tokenized securities.
Hong Kong’s securities watchdog has clarified the rules intermediaries should follow when engaging in tokenized securities-related activities.
According to the Securities and Futures Commission (SFC), tokenized securities traded in Hong Kong are akin to traditional securities, and they fall under the purview of similar legal and regulatory standards.
Asset Tokenization Rules
In a circular dated November 2, the regulator urged intermediaries marketing or distributing security tokens to comply with existing rules and regulations, noting that tokenized securities are “complex products,” warranting additional investor protection measures.
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“This will help to clarify regulatory expectations for intermediaries engaged in such activities, thereby providing regulatory certainty to support continued innovation with appropriate safeguards from an investor protection perspective,” the statement read.
Specifically, the regulator pointed out that all securities offerings must comply with the Securities and Futures Ordinance on investment offers and the Companies Ordinance’s Prospectus Regime.
Noting that tokenization shouldn’t alter the complexity of the underlying security, the SFC has called on intermediaries to ensure that risks arising from the nascent technology are “effectively mitigated” and would not impact investors.
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The latest guidelines come as Hong Kong’s interest in tokenization rises, a fact the SFC acknowledged.
Rising Tokenization Interest in Kong Hong
According to the circular, the SFC has observed financial institutions’ growing interest in tokenizing traditional financial instruments. The regulator even went ahead to mention the potential benefits of tokenization.
“The SFC sees the potential benefits of tokenization to the financial markets, particularly in increasing efficiency, enhancing transparency, reducing settlement time, and lowering costs for traditional finance, but it is also aware of the new risks arising from the use of this technology,” the regulator stated.
The regulator noted that some intermediaries already involved in tokenization activities in Hong Kong include traditional brokers, fund managers, and licensed operators of virtual asset trading platforms.
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