The Hong Kong Financial Authority (HKMA) introduced complete regulatory requirements for licensed establishments to promote and distribute tokenized monetary merchandise on February 20.
This system is designed to foster innovation whereas guaranteeing robust shopper protections within the rising discipline of tokenization, the place real-world property (RWA) are digitally represented utilizing decentralized ledger know-how or comparable programs.
The steerage defines the scope of tokenized merchandise below the brand new regulatory framework, explicitly excluding merchandise already lined by the Securities and Futures Ordinance and particular laws from the Securities and Futures Fee (SFC) and the Hong Kong Financial Authority.
The transfer is available in response to the fast improvement of tokenization know-how and its functions within the monetary sector. In latest months, Hong Kong has turn into more and more open to Web3 know-how and targeted on imposing complete guidelines for the business.
Present guidelines that apply
This regulatory discover establishes the clear precept that current guidelines and protections for conventional monetary merchandise ought to apply equally to tokenized merchandise, as their phrases, options and dangers are comparable.
This consists of structured funding merchandise and tokenized valuable metals that aren’t regulated below the Securities and Futures Ordinance, whereas making it clear that stablecoins usually are not included on this discover.
To make sure that licensed establishments adjust to these requirements, the MAS requires thorough due diligence earlier than providing tokenized merchandise to clients. This consists of understanding the character, performance, dangers of the product and ongoing due diligence to adapt to any modifications.
Establishments should additionally conduct due diligence on issuers and third-party service suppliers concerned within the tokenization course of, assessing their expertise, observe file, and dangers related to tokenization preparations.
Disclosure and Danger Administration
By way of product and threat disclosure, establishments should act in one of the best pursuits of their clients and totally disclose the important thing phrases, options and dangers related to tokenized merchandise.
This consists of dangers related to the underlying distributed ledger know-how (DLT) community, potential safety threats resembling hackers, and authorized uncertainties relating to the possession and finality of transactions on the DLT community.
Danger administration is one other key space outlined by the MAS. Licensed authorities should set up acceptable insurance policies, procedures, programs and controls to determine and mitigate dangers related to the sale and distribution of tokenized merchandise.
This features a complete threat administration framework overlaying coverage, inner controls, complaints dealing with, compliance, inner audit and enterprise continuity planning.
On the identical time, establishments that present custody companies for tokenized merchandise should adjust to the HKMA’s anticipated requirements for digital asset custody to make sure that these companies are protected and dependable.
