The Hong Kong regulator sets investment requirements in demand.
Hong Kong's Securities and Futures Commission (SFC) has set out business requirements for offering tokenized securities and other investment products in a circular released on November 2.
Market demand in Hong Kong for tokenized investment products, coupled with the various benefits of blockchain technology, became one of the key drivers for SFC to consider issuing public guidelines on security information and token futures markets.
At the conclusion of the closely watched Central Financial Business Conference, China outlined future focus areas and directions to sustain the country's high-quality financial development. pic.twitter.com/Jq4ax0cb3X
— SFC TALK (@sfc_talk) November 2, 2023
The circular enumerates 12 points at length, emphasizing four aspects – token preparation, disclosure, intermediaries and competence of personnel – the competence to provide securities-related activities.
The objective of introducing investment products approved by the SFC is related to the increase in market demand and the government's desire to facilitate market development. Considering that the underlying product may meet all applicable product licensing requirements and additional safeguards to address associated risks, the SFC said:
“Following a discretionary approach, the SFC is of the view that it is appropriate to permit the principal trading of investment products authorized by the SFC.”
Providers are required to take full responsibility for their tokenized products, ensure effective record keeping and demonstrate operational soundness. The SCC further explained:
“Producers should not use non-public blockchain networks without additional and proper oversight.”
Regarding disclosure requirements, providers must clearly disclose whether settlements occur on-chain or off-chain and verify ownership of tokens at all times. Finally, the SFC also requires providers to “have at least one qualified and experienced staff member to manage operations and/or token arrangements and to appropriately manage new risks associated with ownership and technology.”
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Despite federal efforts to promote investment products, the interest in crypto for Hong Kong residents has shown a significant decline.
The recent JPEX scandal in Hong Kong sent shock waves through the crypto community. A new survey shows how trust is being impacted in the digital asset space. Thread pic.twitter.com/pmbQdbFAND
— tanjiro (@tanjiroNFTs) October 17, 2023
According to a study conducted by the Hong Kong University of Science and Technology Business School, the $166 million JPEX scandal has negatively affected investors' willingness to invest in crypto.
41% of 5,700 respondents prefer not to own digital assets.
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