Hong Kong issues regulatory standards for tokenized financial products

The Hong Kong Monetary Authority (HKMA) unveiled comprehensive regulatory standards connected Feb. 20 for the merchantability and organisation of tokenized fiscal products by authorized institutions.

The inaugural aims to foster innovation portion ensuring robust user extortion wrong the burgeoning tract of tokenization, wherever real-world assets (RWA) are digitally represented utilizing distributed ledger exertion oregon akin systems.

The guidelines delineate the scope of tokenized products that autumn nether this caller regulatory framework, explicitly excluding products already covered by the Securities and Futures Ordinance and circumstantial regulations by the Securities and Futures Commission (SFC) and HKMA.

The determination is simply a effect to the accelerated advancement successful tokenization technologies and their exertion successful the fiscal sector. Hong Kong has go progressively unfastened toward Web3 exertion successful caller months and is focused connected implementing comprehensive rules for the sector.

Existing rules to apply

The regulatory announcement establishes wide principles that existing rules and protections for accepted fiscal products should likewise use to tokenized products, fixed their comparable terms, features, and risks.

This includes structured concern products and tokenized precious metals not regulated by the Securities and Futures Ordinance portion explicitly stating that this announcement does not screen stablecoins.

To guarantee that authorized institutions adhere to these standards, the HKMA mandates thorough owed diligence earlier offering tokenized products to customers. This includes knowing the product’s nature, features, risks, and continuous owed diligence to accommodate to immoderate changes.

Institutions indispensable besides execute owed diligence connected issuers and third-party work providers progressive successful the tokenization process, assessing their experience, way record, and the risks associated with the tokenization arrangements.

Disclosures and hazard management

In presumption of merchandise and hazard disclosure, institutions are required to enactment successful the champion interests of their clients, providing afloat disclosure of cardinal terms, features, and risks associated with tokenized products.

This includes risks associated with the underlying distributed ledger exertion (DLT) networks, imaginable information threats specified arsenic hacking, and ineligible uncertainties regarding ownership and finality of transactions connected DLT networks.

Risk absorption is different captious country outlined by the HKMA. Authorized institutions indispensable found capable policies, procedures, systems, and controls to place and mitigate risks related to the merchantability and organisation of tokenized products.

This includes a broad hazard absorption model covering policies, interior controls, ailment handling, compliance, interior audit, and concern continuity planning.

Meanwhile, institutions that supply custody services for tokenized products indispensable comply with the HKMA’s expected standards for integer plus custody, ensuring that these services are unafraid and reliable.

The station Hong Kong issues regulatory standards for tokenized fiscal products appeared archetypal connected CryptoSlate.