The Securities and Futures Commission (SFC) of Hong Kong Sets Guidelines for Tokenized Securities
The Securities and Futures Commission (SFC) of Hong Kong has released a circular outlining the business requirements for offering tokenized securities and other investment products. The decision to issue these guidelines was driven by market demand in Hong Kong for tokenized investment products and the benefits of blockchain technology. The circular highlights four key aspects – tokenization arrangement, disclosure, intermediaries, and staff competence – that must be met for eligibility in issuing tokenized securities-related activities.
Tokenization with Safeguards
The SFC believes that tokenizing SFC-authorized investment products is appropriate as long as the underlying product meets all applicable authorization requirements and additional safeguards are implemented to address associated risks. Providers must take full responsibility for their tokenized products, maintain effective record-keeping, and demonstrate operational soundness. Public-permissionless blockchain networks should not be used without proper controls.
Disclosure Requirements
Providers must clearly disclose whether settlements occur off-chain or on-chain and provide proof of token ownership at all times. Additionally, providers are required to have at least one competent staff member with relevant experience to manage the tokenization arrangement and address new risks related to ownership and technology appropriately.
Decline in Crypto Interest in Hong Kong
Despite efforts to tokenize investment products, interest in crypto among Hong Kong locals has declined significantly. A survey conducted by the Hong Kong University of Science and Technology’s business school revealed that the $166-million JPEX scandal had a negative impact on investors’ willingness to invest in crypto. Out of 5,700 respondents, 41% expressed a preference not to hold digital assets.
Hot Take: SFC Sets Guidelines for Tokenized Securities in Hong Kong
The Securities and Futures Commission (SFC) of Hong Kong has issued guidelines for offering tokenized securities and investment products. These guidelines aim to meet the market demand for tokenized investments and leverage the benefits of blockchain technology. The SFC emphasizes the importance of tokenization arrangement, disclosure, intermediaries, and staff competence in ensuring eligibility for issuing tokenized securities-related activities. Providers must take responsibility for their products, implement safeguards, disclose settlement methods, and have competent staff members. Despite these efforts, a survey reveals a decline in crypto interest among Hong Kong locals, potentially influenced by recent scandals.
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