The Hong Kong Monetary Authority (HKMA) sets regulatory standards for tokenized products
The HKMA has released a circular outlining regulatory standards for institutions selling and distributing tokenized products. The goal is to promote innovation, ensure consumer and investor protection, and promote due diligence, transparency, and risk management.
Regulatory standards for selling and distributing tokenized products
The HKMA has issued a circular detailing the regulatory standards authorized institutions must adhere to when selling and distributing tokenized products. This move demonstrates the regulatory body’s commitment to embracing technological advancements while safeguarding consumers and investors.
Defining tokenized products
Tokenized products are real-world assets digitally represented using distributed ledger technology. However, this circular does not cover products regulated under the Securities and Futures Ordinance or subject to regulations by the Securities and Futures Commission.
Supporting industry initiatives
The HKMA supports the industry’s efforts in tokenization and acknowledges the progress made so far. The regulatory standards outlined in the circular aim to provide clear guidelines for the banking sector, fostering innovation while ensuring consumer and investor protection.
Applying existing regulatory requirements
The circular emphasizes that existing regulatory requirements and consumer/investor protection measures also apply to tokenized products. This is because the terms, features, and risks associated with these products are similar to non-tokenized counterparts.
Specific examples
The circular provides specific examples, such as tokenized structured investment products not regulated under the Securities and Futures Ordinance and tokenized gold. These products should follow the same regulatory requirements as their non-tokenized counterparts.
Due diligence and risk management
Authorized institutions are required to perform due diligence, disclose risks and product features transparently, and effectively manage risks associated with the sale and distribution of tokenized products. They must establish control measures to ensure compliance with regulations and address the unique nature of these products.
Proactive regulation of emerging technologies
The circular reflects the HKMA’s proactive approach to regulating emerging technologies in the financial sector. The aim is to realize the benefits of innovation while protecting consumers and maintaining the integrity of the financial system.
Contacting HKMA representatives for guidance
Authorized institutions with queries can contact designated HKMA representatives for further guidance. The HKMA will continue to monitor the regulatory environment and provide additional guidance as needed.
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