The Hong Kong Securities and Futures Commission (SFC) has announced new guidelines for offering tokenized securities and other investment instruments. The decision stems from the need for regulatory support for a market that is struggling with the aftermath of previous negative events.
Hong Kong sets its sights on transparent rules
Guided by the needs of the local investment community and the potential of blockchain technology, the SFC has implemented 12 key points of guidance. They focus on aspects such as the tokenization process, transparency of information, the role of intermediaries and staff competence. All of the aforementioned aspects must meet certain criteria in order to participate in the issuance of tokenized securities.
The introduction of tokenization of investment products, which have been approved by the SFC, is a response to the growing demand for such solutions, in the local market. The government, in turn, is expressing interest in supporting the development of the investment sector. In the context of the fact that the underlying product must meet all the required criteria related to the issuance authorization and additional security measures to minimize risks, the SFC expressed:
“The SFC considers it appropriate to introduce primary issuance of tokenized investment products that have received SFC approval, provided that transparency is maintained.”
Security derived from competence
Product providers are obliged to be fully responsible for their tokenized investments, as well as to ensure meticulous documentation and operational stability. The SFC stressed:
“Suppliers should not use public blockchain networks without additional adequate controls.”
In terms of disclosure, providers must accurately report whether settlements take place off-chain or on-chain, and systematically confirm ownership of tokens. In addition, the SFC will require each supplier to have at least one competent employee with the necessary experience and expertise to ensure quality service and oversight of the tokenization process. This is also necessary to manage new risks related to technology and ownership.
A new standard for crypto investment
Despite previous attempts at various types of implementations in the field of tokenization of investment products, the popularity of cryptocurrencies in Hong Kong has declined significantly. The results of a survey conducted by the Hong Kong University of Science and Technology revealed that the $166 million JPEX scandal has negatively affected residents’ willingness to invest in cryptocurrencies. According to 41% of the 5,700 respondents, not owning digital assets is a better option.
But with new regulations and market challenges, the future of token investment in Hong Kong is becoming clearer. The SFC, along with the government, is betting on the growth of the sector. The new regulatory framework, meanwhile, could make investments in crypto products in Hong Kong among the safest in the world.