On November 2, the Securities and Futures Commission (SFC) of Hong Kong unveiled a set of business requirements pertaining to the offering of tokenized securities and other investment products. The surge in demand for tokenized investment products in the Hong Kong market, along with the evident benefits of blockchain technology, prompted the SFC to consider issuing public guidance on the tokenization of securities and futures markets. The notice outlines 12 key points, focusing on four main areas: qualifications for activities related to tokenized securities issuance, tokenization arrangements, information disclosure, intermediaries, and employee capabilities.
The SFC's move towards recognizing tokenized investment products is closely linked to increasing market demand and the government's commitment to fostering market development. To allow primary trading of tokenized investment products authorized by the SFC, providers must meet all relevant product authorization requirements and incorporate additional safeguards to address associated risks. Providers are also required to maintain transparent operations, take full responsibility for their tokenized products, demonstrate the robustness of their operations, and refrain from using non-public permissioned blockchain networks without additional and suitable controls. Disclosure requirements mandate clear identification of whether settlement occurs off-chain or on-chain, and providers must consistently prove ownership of tokens. Furthermore, the SFC insists that providers have at least one competent employee with the necessary experience and expertise to manage tokenization arrangements effectively and handle the new risks associated with ownership and technology.
Despite the government's efforts to promote tokenized investment products, local interest in cryptocurrencies has waned in Hong Kong. The alleged $166 million JPEX scandal has cast a shadow over investor confidence in cryptocurrency, with a survey conducted by the Hong Kong University of Science and Technology Business School revealing that 41% of the 5,700 respondents were unwilling to hold digital assets.
