The overall crypto market is rapidly surging, resulting in numerous exploitations experienced by the crypto industry. As this industry lacks regulatory frameworks, several crypto businesses have also taken advantage of this financial market.
Tokenized securities treated like traditional securities
Recently, in the race to become a web3 hub, Hong Kong’s Securities and Futures Commission (SFC) has taken steps to regulate digital asset tokenization with the issuance of two circulars. These circular provides clear and to-the-point instructions for the intermediaries/firms entering the space of the financial market as well as set criteria for tokenizing investment products authorized by the SFC.
The main objective of SFC is to treat tokenized securities similar to traditional securities with an added layer of tokenization. This means the legal and regulatory rules that apply to traditional securities are also applicable to tokenized securities.
Along with this, the regulators have also specified that the intermediaries/firms have to follow all the certain rules mentioned in the Companies Ordinance and the Securities and Futures Ordinance.
Additionally, intermediaries involved in offering advice on tokenized securities, managing tokenized funds, and facilitating secondary market trading on virtual asset trading platforms have to follow the existing rules.
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Hong Kong’s growing interest in tokenization
This guidance from the SFC coincides with Hong Kong’s growing interest in tokenization. In February, the Hong Kong Monetary Authority made headlines by issuing the world’s first tokenized green bond, raising approximately $100 million.
Along with all these regulations on tokenized assets, the SFC’s circulars highlight that licensed trading platforms need to establish an SFC-approved compensation plan to safeguard against potential losses involving security tokens.
The interest in tokenization has surged in recent times, with financial institutions showing a perceptive interest in tokenizing traditional financial instruments within the global financial markets. The SFC clarified that it has been reviewing various proposals concerning the tokenization of investment products, including primary offerings and secondary trading on SFC-licensed virtual asset trading platforms.
The regulatory body acknowledges the potential benefits of tokenization, such as increased efficiency, enhanced transparency, reduced settlement times, and lower costs for traditional finance. However, it remains mindful of the new risks that this technology brings.