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Hong Kong Pushes for Tokenization of Real-World Assets

2 mins
Updated by Ali M.
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In Brief

  • Hong Kong financial regulators support the tokenization of real-world assets for improved transactions.
  • The country's Monetary Authority plans to issue guidelines for the banking sector on tokenized products.
  • Securities and Futures Commission to clarify rules on tokenized securities, enhancing investor protection.
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Hong Kong’s financial regulators, including the Hong Kong Monetary Authority (HKMA) and the Securities and Futures Commission (SFC), are setting the stage for the growth of the tokenization of real-world assets (RWA) industry.

Tokenization, which converts asset rights into digital tokens on a blockchain, promises to enhance transaction efficiency and transparency.

Hong Kong to Regulate Tokenization of Real-World Assets

Recently, the HKMA announced its intent to provide detailed guidance on tokenized products. This move aims to establish clear regulatory standards for the banking industry.

Moreover, the Financial Services and the Treasury Bureau (FSTB) has unveiled fintech and tokenization initiatives. Key among these initiatives is the Integrated Fund Platform (IFP) and the promotion of applications related to the real economy by the virtual asset (VA) and Web3 sectors.

Financial Secretary Paul Chan has stressed the significance of these initiatives. They aim to provide the public with more accessible, affordable, and inclusive financial services.

“Empowering financial institutions to accelerate digitalization and product innovation, better serving the real economy, and providing members of the public with more convenient, less expensive, and inclusive financial services,” Chan said.

Read more: What is The Impact of Real World Asset (RWA) Tokenization?

Additionally, the SFC plans to issue circulars on tokenized securities and SFC-authorised investment products. This approach intends to make regulatory expectations clear and enhance investor protection. It may also extend regulations to include a wider range of virtual asset transactions.

The SFC also shared a document detailing potential requirements for investment product tokenization. It emphasizes the need for responsible product management, accurate record-keeping, and robust cybersecurity risk management.

Industry leaders like BlackRock’s Larry Fink are optimistic about the future of asset tokenization. Indeed, Fink envisions a future where all asset classes, including ETFs, are tokenized. This transformation could revolutionize asset management by enabling instant transactions and seamless ownership transfers.

“We have the technology to tokenize today. If you have a tokenized security and identity, the moment you buy or sell an instrument on a general ledger, that is all created together. You want to talk about issues around money laundering. This eliminates all corruption by having a tokenized system,” Fink explained.

Growth Potential For Real-World Asset Tokenization Market.
Growth Potential For Real-World Asset Tokenization Market. Source: BCG

Echoing this sentiment, BCG predicts that the market for real-world asset tokenization could reach up to $16 trillion by the decade’s end.

It is worth noting that Hong Kong is also strengthening its crypto regulations. The SFC has required all virtual asset trading platforms (VATPs) to secure or apply for a VATP license by February’s end. This mandate aims to create a regulated environment for virtual asset investors, emphasizing the importance of licensed platforms and highlighting the risks associated with unlicensed ones.

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Harsh Notariya
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