Hong Kong's SFC Issues Tokenization Guidelines, Advancing its Bid to Become Asia's Leading Web3 Hub
Summary:
Hong Kong's Securities and Futures Commission (SFC) has issued two guidelines for the regulation of digital asset tokenization as the city aims to become a leading Web3 hub in Asia. The guidelines ensure tokenized securities adhere to existing legal and regulatory norms of traditional securities and specify measures for potential security token losses. The move follows the Hong Kong Monetary Authority's successful launch of the world's first tokenized green bond, raising nearly $100 million. Despite acknowledging tokenization's potential benefits, including improved efficiency, enhanced transparency, and reduced costs, the SFC also noted the emerging risks associated with the technology.
In a bid to become a leading Web3 hub within Asia, Hong Kong's main securities regulator has issued two guidelines addressing the regulation of tokenization of digital assets. These directives from the Securities and Futures Commission (SFC) provide guidance on tokenized securities activities to mediators and highlight the rules for SFC-approved tokenized investment products.
The SFC views tokenized securities as traditional securities but encompassed by a tokenization layer, implying the same laws and regulations applicable to ordinary security markets extend to tokenized securities. The entity specified that offerings of tokenized securities must align with both the Companies Ordinance’s prospectus regime and the Securities and Futures Ordinance's investment offers schemes.
Additionally, it emphasized that intermediaries contributing advice on tokenized securities, managing such funds, and facilitating secondary market trade on virtual asset platforms should stick to the existing conduct standards for securities-related activities.
This recent instruction from the regulator aligns with Hong Kong's ongoing exploration of tokenization. Following this trajectory, the Hong Kong Monetary Authority (HKMA), functioning as its central banking institution, launched the globe's first tokenized green bond in February, raising close to $100 million.
The circular highlighted that licensed trading platforms should implement compensation measures approved by the SFC to protect against potential security token losses. Cryptocurrency trading platform operators, for example, can display measures like transfer limits or whitelisting to ensure tokenized securities' safety.
Recently, tokenization has been a hot topic, with the SFC citing increased interest from financial organizations about tokenizing traditional financial tools on the global financial scene. As such, the regulator said it had been examining various proposals regarding the tokenization of SFC-sanctioned investment products, including matters associated with primary offers and secondary trades of tokenized products on SFC-licensed virtual asset platforms.
Finally, while recognizing the potential advantages of tokenization for financial markets in terms of efficiency, transparency, cost reductions, and settlement time cutbacks, the SFC also acknowledged the novel risks associated with using this technology.
Published At
11/2/2023 11:15:30 AM
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