The SFC Hong Kong will allow tokenized permitted investment products

Tokenized products of SFC-approved investment products may be offered to retail clients in Hong Kong

Hong Kong’s Securities and Futures Commission (SFC) will now allow tokenized permitted investment products to be offered to retail investors. Recognizing the growing interest in the tokenization of investment products in Hong Kong, on 2 November 2023 the SFC issued a circular outlining the public offering scheme and requirements of tokenized permitted investment products under the Securities and Futures Ordinance for Primary Transactions. However, secondary trading of such tokenized investment products is not yet permitted.

The Public Offering Scheme is subject to certain investor protection requirements and safeguards which are summarized below.

Tokenization Agreement

Tokenization of investment products involves the creation of blockchain-based tokens representing ownership of an investment product that can be digitally recorded and offered directly to investors or through licensed intermediaries.
The SFC requires providers of tokenized investment products authorized by the SFC (product providers) to:

  • has ultimate responsibility for the management and operational reliability of the tokenization agreement, regardless of outsourcing;
  • maintain proper records of ownership interests of token holders and make tokenization agreements interoperable with participating service providers;
  • ensure that adequate measures are in place to manage cyber security, data privacy, system disruption and business continuity risks; and
  • ensures that additional controls are enforced when using public blockchain networks without permissions.

The SFC may also specifically require a Product Provider to:

  • demonstrate the management and operational stability of the tokenization agreement, record-keeping of ownership and integrity of smart contracts;
  • receiving audits or inspections from third parties; and
  • obtain satisfactory legal opinions in support of the application.

Prior consultation with the SFC is required for the launch of new investment products that have tokenization features and the tokenization of existing investment products permitted by the SFC.


Offering documents for tokenized investment products authorized by the SFC must clearly state:

  • details of the tokenization agreement, including whether the off-chain or on-chain settlement is final;
  • representation of token ownership (eg legal and beneficial ownership of tokens, ownership of/interests in the product); and
  • risks associated with the tokenization agreement, such as cybersecurity, system outages, the possibility of undetected technical flaws, the evolving regulatory environment, and potential challenges in enforcing existing laws.


Distributors of tokenized investment products authorized by the SFC must be regulated intermediaries that adhere to existing rules and regulations and carry out client inclusion and suitability assessments.

Competence of personnel

Product providers must demonstrate to the SFC that they have competent staff with the relevant experience and expertise to oversee the tokenization arrangement, manage ownership risks and handle the technology appropriately.


The issuance of this circular also reflects the SFC’s efforts to ensure that appropriate safeguards are in place to mitigate the risks associated with this emerging technology. Clear requirements regarding the tokenization agreement and disclosure in the offering documents are expected to further promote investor protection, market integrity and innovation in Hong Kong’s financial industry.

Leave a Comment

Your email address will not be published. Required fields are marked *