Understanding the New Circular from the SFC

On November 2, the Securities and Futures Commission (SFC) of Hong Kong released a circular introducing essential business requirements for tokenized securities and investment products. This move showcases the SFC’s responsiveness to the growing market demand in Hong Kong for tokenized investments, alongside the benefits offered by blockchain technology.

Key Drivers for Tokenization

The rising demand for tokenized investment products is attributed to various factors, including the evolving landscape of financial technologies. The SFC identified four key areas that must be addressed by providers before engaging in tokenized securities-related activities:

• Tokenization arrangements
• Disclosure practices
• Role of intermediaries
• Staff competence

Responsibilities of Product Providers

Providers wishing to enter this realm are expected to take the bull by the horns. They are tasked with maintaining rigorous record-keeping standards and ensuring operational soundness. The SFC has made it clear: “Product Providers should not use public-permissionless blockchain networks without additional and proper controls.” In simpler terms, no shortcuts!

Disclosure Requirements Simplified

When it comes to transparency, the SFC demands that providers clearly disclose whether their settlement processes occur off-chain or on-chain. They also have to prove token ownership at every step—no disappearing tokens allowed!

Adding Competence to the Equation

In a world that seems to be spinning faster than a roulette wheel, the SFC has wisely mandated that providers must employ at least one competent staff member with the necessary experience to handle the complexities of tokenization and the associated risks. A little expertise goes a long way in ensuring safety and sound practices.

The Impact of Recent Scandals

Despite these advancements and guidelines, the interest of Hong Kong locals in crypto investment is taking a nosedive, thanks in part to the JPEX scandal, which allegedly involved a whopping $166 million. A recent survey from the Hong Kong University of Science and Technology revealed that 41% of the 5,700 respondents expressed a complete aversion to digital assets, reflecting a potential trust crisis in the crypto space. When it rains, it pours, huh?