Hong Kong’s Securities and Futures Commission (SFC) plans to give tokenised financial products more room to develop under a new regulatory pathway.

The regulator will consider offering greater flexibility and guidance to help firms test and launch new products while maintaining investor safeguards.

Elisa Ng, Executive Director of Investment Products at the SFC, outlined the initiative during Hong Kong Fintech Week on 2 November.

The pathway will use the SFC’s existing regulatory powers and could eventually support innovations beyond tokenisation.

Hong Kong currently has 17 tokenised retail investment products, including money market funds, gold products and exchange-traded funds (ETFs). Together, they manage US$1.3 billion in assets.

The SFC has allowed tokenised retail products since 2023.

It recently issued guidance to help retail funds hold and transact in regulated stablecoins and tokenised deposits.

SFC Looks to Expand Tokenised Asset Trading

The regulator is now focusing on two areas: secondary trading and corporate treasury management.

The SFC approved its first batch of tokenised money market funds for secondary trading on licensed virtual asset trading platforms in late October.

This could allow investors to trade these funds around the clock and access liquidity more easily.

The SFC will monitor how the funds trade before considering whether to extend the approach to other products. Tokenised gold ETFs could be next.

The regulator is also exploring how tokenised money market funds and digital money could help companies move cash between investments more efficiently.

Ng raised the possibility of using China’s digital yuan, or e-CNY, to buy and redeem renminbi-denominated tokenised funds.

Another potential use is settling investments in government bills using e-CNY, subject to regulatory and cross-border requirements.

SFC Eyes Broader Uses for Tokenised Assets

The Hong Kong Monetary Authority also announced the introduction of 24/7 interbank settlement in central bank digital currency under Project Ensemble.

This would allow tokenised deposits to support round-the-clock transactions.

The SFC also wants to explore using tokenised assets as collateral and bringing more stocks and bonds onto blockchain networks.

The regulator sees potential for smart contracts to automate investment processes.

Ng urged banks, asset managers and other financial firms to modernise their systems and engage with the regulator early when developing new products.

Featured image: Edited by Fintech News Hong Kong, based on image by 4045 via Magnific