SFC aims to offer clarity and investor protection in tokenized securities activities

Hong Kong’s Securities and Futures Commission (SFC), the independent statutory body tasked with regulating the securities and futures markets, has released two circulars aimed at overseeing the tokenization of digital assets.

These circulars provide guidance for intermediaries engaged in tokenized securities activities and delineate the criteria for tokenizing investment products authorized by the SFC.

Retaining responsibility

In the announcement dated Nov. 2, the SFC states that when intermediaries, such as fund managers overseeing tokenized funds, issue or have substantial involvement in the issuance of Tokenized Securities they intend to handle or advise on, they retain responsibility for the overall management of the tokenization process, even if they outsource components to third-party vendors or service providers.

The circular also states that Virtual Asset Trading Platform Operators (VATPs) are mandated to establish an SFC-approved compensation arrangement to safeguard against potential security token losses in accordance with the Guidelines for VATP Operators. 

The SFC has stated that it is open to considering, upon application by a VATP, the possibility of exempting specific Tokenised Securities from mandatory coverage on a case-by-case basis, seeking to provide flexibility in the regulatory framework.

Leading with investor protection

The SFC further reinforces their dedication to investor protection in an earlier Sept. 13 announcement where it reminded residents to remain cautious when dealing with unregulated platforms, which at the time included JPX, a cryptocurrency exchange that was operating without regulatory approval. 

The platform has since halted some transactions amid the accusations.