Hong Kong’s SFC Lays Out Regulatory Pathway for Tokenisation
The SFC issued guidance in November 2023 establishing a regulatory framework for tokenisation of retail investment products and services for tokenised financial instruments, enhancing clarity for market participants.
Hong Kong’s SFC Lays Out Regulatory Pathway for Tokenisation
On 2 November 2023, the Securities and Futures Commission (SFC) of Hong Kong released two key circulars during the 2023 Hong Kong FinTech Week, providing much-anticipated guidance on the tokenisation of retail investment products and the provision of services related to tokenised financial instruments.
Overview of the Guidance
The circulars establish a clear regulatory framework that addresses the issuance, distribution, and trading of tokenised securities and investment products. This framework aims to foster innovation while ensuring investor protection and market integrity.
Key Highlights
- Scope: The guidance applies to licensed corporations engaging in activities involving tokenised financial products, including issuance, dealing, advising, and asset management.
- Regulatory Requirements: Firms must comply with existing licensing and conduct requirements under the Securities and Futures Ordinance (SFO), adapted to the unique features of tokenised assets.
- Investor Protection: Emphasis on robust disclosure, risk management, and suitability assessments tailored to the complexities of tokenised products.
- Technology and Security: Expectations for firms to implement strong cybersecurity measures and ensure the integrity of tokenisation platforms.
Implications for Market Participants
The SFC’s guidance provides much-needed clarity for financial institutions, fintech firms, and investors interested in tokenised assets. It encourages innovation in Hong Kong’s capital markets while maintaining regulatory standards to protect investors and uphold market confidence.
Looking Ahead
As tokenisation gains traction globally, Hong Kong’s regulatory approach positions it as a leading hub for digital asset innovation. Market participants are advised to review the circulars carefully and engage with the SFC to ensure compliance and capitalize on emerging opportunities.
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