The Securities and Futures Commission (SFC) of Hong Kong set out business requirements for offering tokenized securities and other investment products in a circular issued on November 2.

Hong Kong’s market demand for tokenized investment products combined with the various advantages of blockchain technology has become one of the main motivations for the SFC to consider issuing general guidelines on tokenization of the securities and futures market.

With the conclusion of the closely watched Central Financial Work Conference, China has set priorities and future directions for pursuing high-quality financial development in the country. pic.twitter.com/Jq4ax0cb3X

– SFC TALK (@sfc_talk) November 2, 2023

The circular generally details 12 points, focusing on four aspects – tokenization arrangement, disclosure, intermediaries, and staff competence – for eligibility in issuing activities related to tokenized securities.

The objective of tokenization of investment products authorized by the SFC is related to the growing market demand and the government’s willingness to facilitate market development. Given that the core product can meet all applicable product licensing requirements and additional safeguards to address associated risks, the SFC stated:

“By adopting a transparent approach, the SFC considers it appropriate to allow initial dealing in investment products authorized by the SFC.”

Providers are expected to take full responsibility for their tokenized products, ensure effective record keeping, a high appetite for risk, and demonstrate operational safety, among other factors. The SFC further explained:

“Product providers should not use public blockchain networks unauthorizedly without additional and appropriate controls.”

Regarding disclosure requirements, providers need to clearly disclose whether settlements take place off-chain or on-chain and prove ownership of tokens at all times. Finally, the SFC will also require providers to “have at least one qualified employee with the relevant experience and expertise to appropriately operate and/or supervise coding arrangements and manage new proprietary and technology-related risks.”

Related: HSBC and Ant Group are both testing token deposits under the HKMA’s sandbox

Despite federal efforts to tokenize investment products, interest in cryptocurrencies among Hong Kong residents has seen a significant decline.

The recent JPEX scandal in Hong Kong sent shock waves through the cryptocurrency community. A new survey shows how this affects trust in the digital asset space.
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– Tanjiro (@tanjiroNFTs) October 17, 2023

A survey conducted by the Business School of the Hong Kong University of Science and Technology revealed that the alleged $166 million JPEX scandal negatively affected investor willingness to invest in cryptocurrencies.

Out of 5,700 participants, 41% of participants prefer not to hold virtual assets.