Part 2 of SFC Circular: Guidelines for Intermediaries Engaging in Tokenized Securities Activities
The Securities and Futures Commission (SFC) of Hong Kong recently released a circular providing guidelines for intermediaries engaging in tokenized securities activities. This circular, which is divided into two parts, aims to provide clarity and regulatory guidance for intermediaries operating in the rapidly evolving field of tokenized securities.
Part 2 of the circular focuses on the specific requirements and expectations for intermediaries involved in tokenized securities activities. It outlines the SFC’s approach to regulating these activities and highlights the key areas that intermediaries need to consider to ensure compliance with the regulatory framework.
One of the main aspects covered in Part 2 is the licensing requirements for intermediaries engaging in tokenized securities activities. The SFC emphasizes that any intermediary involved in dealing, advising, or managing assets related to tokenized securities must possess the appropriate licenses. This ensures that intermediaries have the necessary expertise and qualifications to operate in this complex and evolving space.
The circular also addresses the importance of proper risk management and investor protection measures. Intermediaries are expected to implement robust risk management frameworks to identify, assess, and mitigate risks associated with tokenized securities activities. This includes conducting thorough due diligence on issuers and ensuring adequate disclosure of information to investors.
Furthermore, intermediaries are required to have proper systems and controls in place to safeguard client assets and protect against cybersecurity risks. Given the digital nature of tokenized securities, intermediaries must have robust cybersecurity measures to prevent unauthorized access, data breaches, and other cyber threats.
Part 2 of the circular also highlights the need for intermediaries to have adequate policies and procedures in place for anti-money laundering (AML) and counter-terrorist financing (CTF) purposes. Intermediaries must conduct thorough customer due diligence, monitor transactions for suspicious activities, and report any suspicious transactions to the relevant authorities.
In addition to these requirements, the circular emphasizes the importance of ongoing monitoring and supervision of tokenized securities activities. Intermediaries are expected to have proper internal controls and compliance functions to ensure ongoing compliance with regulatory requirements. They should also maintain proper records and documentation to facilitate regulatory oversight and audits.
The SFC recognizes that the tokenized securities market is still evolving, and new technologies and business models may emerge. Therefore, the circular also encourages intermediaries to engage with the SFC on a regular basis to seek guidance and clarification on regulatory matters. This collaborative approach aims to foster innovation while ensuring investor protection and market integrity.
Overall, Part 2 of the SFC Circular provides comprehensive guidelines for intermediaries engaging in tokenized securities activities. By addressing licensing requirements, risk management, investor protection, cybersecurity, AML/CTF measures, and ongoing monitoring, the SFC aims to create a robust regulatory framework that promotes the development of the tokenized securities market in Hong Kong while safeguarding investor interests.
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