The SFC has recently updated guidance on tokenised securities-related activities, aiming to provide clarity on the SFC’s updated expectations on intermediaries who engage in tokenised securities-related activities and product providers of tokenised SFC-authorised investment products. These latest developments are expected to impact intermediaries and product providers in terms of operations, risk mitigation, and more.
According to global law firm Linklaters, the SFC is now adopting a see-through approach in relation to tokenised securities and tokenised SFC-authorised investment products, which recognises that these products are fundamentally traditional securities with a technological element. Other key takeaways from the updated guidance include:
- Intermediaries engaging in tokenised securities-related activities should manage new risks arising from the use of DLT to ensure the healthy development of the tokenisation market and proper investor protection.
- The SFC’s previous Statement on Security Token Offerings from March 2019 (the “2019 SFC STO Statement”) is superceded by the Intermediaries Circular, hence tokenised securities will not be deemed to be “complex products” and will not restricted to offerings to professional investors-only.
- For tokenised SFC-authorised investment products, product providers involved in the primary dealing must ensure additional requirements set out by the SFC are met to mitigate new risks arising from the tokenisation arrangement.
- Intermediaries will need to communicate with the SFC before engaging in activities related to tokenised securities or digital securities.
Linklaters has been closely involved in the topic of digital issuances of debt and structured securities, with notable involvements including advising clients on the inaugural issue of tokenised green bonds by the Hong Kong SAR Government.
It has recently published insights on the SFC’s updated regulatory approach (see attachment), covering the SFC’s approach on activities such as product issuance, custody, and trading considerations.
If you are interested in further insights on SFC’s updated guidance on tokenised securities-related activities, or would like to speak with a legal expert on securities tokenisation, do feel free to reach out to us at linklaters@sandpipercomms.com.
