Tokenized Securities Hong Kong: Regulatory Clarity on Tokenized RWAs

Author: Louie Lee, Consultant

Tokenized Securities Hong Kong are receiving increasing attention as regulatory clarity begins to emerge in relation to digital assets and tokenisation. Recent guidance from the Securities and Futures Commission (SFC) provides important direction for financial institutions and intermediaries seeking to explore Real‑World Asset tokenisation within a regulated framework.

Tokenisation has promised to revolutionise traditional finance, but regulatory uncertainties have hindered its widespread use. Pioneers and innovators have faced legal disputes and regulatory challenges. However, Hong Kong has emerged as a jurisdiction providing much‑needed regulatory clarity for tokenising securities. This newfound clarity positions Hong Kong as an ideal environment for exploring Real‑World Asset (“RWA”) tokenisation.

SFC’s Newfound Clarity on Tokenized Securities

For the first time, the Hong Kong’s Securities and Futures Commission (SFC) has made a distinction in its circular, dated 2 November 2023, between:

• Tokenized Securities – subset of Digital Securities that are traditional financial instruments (e.g. bonds or funds) which utilise DLT as a tokenization wrapper; and

• Digital Securities – structured in more complicated forms, with some existing exclusively on a DLT-based network with no links to extrinsic rights or underlying assets and having no controls to mitigate the risks that ownership rights may not be accurately recorded.

Assuming that a tokenised RWA falls within the definition of “securities”, for example a tradable financial asset under the Securities and Futures Ordinance (SFO), existing legal and regulatory requirements will continue to apply. These include the prospectus regime and the offers of investments regime under the SFO.

In addition, the SFC has highlighted relevant factors that intermediaries should consider when engaging in tokenisation activities, including:

• the experience and track record of third‑party vendors involved in the tokenisation arrangement;

• the technical aspects of the Tokenized Securities;

• the legal and regulatory status associated with the Tokenized Securities; and

• custody arrangements for the Tokenized Securities.

Digital Securities, being structured in more bespoke ways, will be subject to increased scrutiny and regulatory oversight from the SFC.

Further details can be found in the Appendices to the SFC’s recent circular.

With greater clarity on regulatory expectations, intermediaries engaging in RWA tokenisation may better structure their business plans to address regulatory concerns, which may facilitate a more streamlined approval process.

Licensed Activities Involving Tokenized Securities in Hong Kong

Intermediaries intending to conduct Tokenised or Digital Securities related activities may do so under the following licences:

Type 1 licence (dealing in securities):

• Acting as a distributor in the primary issuance of Tokenised/Digital Securities

• Acting as a brokerage firm connecting clients to SFC-licensed virtual asset trading platforms (licensed crypto exchanges) for the secondary trading of Tokenised/Digital Securities.

Type 4 licence (advising on securities):

• Advising clients on investment activities in relation to Tokenised/Digital Securities.

• Issuing research reports on Tokenised/Digital Securities

Type 9 licence (asset management):

• Managing portfolios that invest in Tokenised/Digital Securities

• Managing and distributing a tokenised fund product

Type 1 and type 7 licence + Anti-money Laundering Ordinance licence (virtual asset trading platform):

• Secondary trading of Tokenised/Digital Securities

Licensed intermediaries seeking to expand into RWA tokenisation are required to notify the SFC in advance.

As a final note, the recent regulatory clarity provided by the SFC addresses previous uncertainties that had impeded broader adoption of tokenisation. By defining clear regulatory expectations, this development may encourage traditional financial institutions to explore tokenisation as part of their product offerings.

How Ravenscroft & Schmierer Can Help?

Ravenscroft & Schmierer advises clients on the regulatory framework concerning Tokenized Securities Hong Kong, including compliance with the Securities and Futures Ordinance and licensing requirements. The firm provides guidance on structuring tokenisation initiatives, assessing regulatory risks, and navigating SFC expectations. Businesses exploring RWA tokenisation or digital asset activities may contact us.

FAQ: Tokenized Securities Hong Kong

What are tokenized securities in Hong Kong?

Tokenized securities are traditional financial instruments, such as bonds or funds, that are issued or represented using distributed ledger technology.

What is the difference between tokenized securities and digital securities?

Tokenized securities relate to traditional financial instruments, whereas digital securities may exist solely within a digital framework without underlying assets.

Does RWA tokenisation fall under Hong Kong securities law?

If a tokenised asset qualifies as a security, it will be regulated under the Securities and Futures Ordinance.

What licences are required for tokenisation activities in Hong Kong?

Licences such as Type 1, Type 4 and Type 9 may be required depending on whether the activity involves dealing, advising, or asset management.

Do firms need to notify the SFC before commencing tokenisation activities?

Yes. Licensed intermediaries must notify the SFC before engaging in Tokenised or Digital Securities activities.

How can Ravenscroft & Schmierer assist with tokenised securities in Hong Kong?

Ravenscroft & Schmierer works with clients to understand regulatory requirements, structure tokenisation projects, and ensure compliance with Hong Kong law.

Why work with Ravenscroft & Schmierer on digital asset and tokenisation matters?

Tokenisation requires careful navigation of evolving regulatory frameworks. Ravenscroft & Schmierer combines legal expertise with practical understanding to assist businesses entering the digital asset sector in a structured and compliant manner.

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Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.

For specific advice about your situation, please contact:

Louie Lee

Consultant

+852 2388 3899

louielee@rs-lawyers.com.hk