Introduction

On 20 April 2026, the Securities and Futures Commission (“SFC”) issued (i) an updated circular on the tokenisation of investment products authorised by the SFC for offering to the public in Hong Kong (“Products”) (the “1^st Circular”), and (ii) a new circular on secondary trading of tokenised Products (the “2^nd Circular”, together with the 1^st Circular, the “Circulars”). The Circulars supersede the SFC’s November 2023 circular on the same subject and introduce a new regulatory framework that formally encompasses secondary trading of tokenised Products. This newsletter focuses on the 1^st Circular.

Background

Tokenisation of a Product involves creating blockchain-based tokens that represent or aim to represent ownership interests in such Product. These tokens are recorded digitally on the blockchain, and may be offered directly to end-investors, distributed through SFC-licensed intermediaries, or traded among the blockchain participants. Market participants have been exploring tokenisation as a means to enhance operational efficiency, reduce reliance on intermediaries, and broaden investor access through new channels.

The SFC adopts a “see-through” approach to tokenised Products, treating them as fundamentally traditional Products (such as unit trusts or mutual funds) with a tokenisation layer. Accordingly, existing legal and regulatory requirements applicable to the underlying Products continue to apply.

Primary dealing

The SFC will permit primary dealing (i.e. subscription and redemption) of tokenised Products, subject to the underlying Products meeting all applicable SFC product authorisation requirements and the following additional safeguards to address the new risks associated with the tokenisation arrangement:

(a)  Tokenisation arrangement

·           Providers of tokenised Products (“Product Providers”) must ensure that proper records of token holders’ ownership interests in the Product are maintained and the tokenisation arrangement is operationally compatible with service providers involved. Product Providers are not expected to issue tokenised Products in bearer form.

 

·           Tokenised Products must not be operated on public-permissionless blockchain networks without additional controls (such as using permissioned tokens) to mitigate associated risks.

 

·           Appropriate measures must be in place to manage and mitigate cybersecurity risks, data privacy, system outages and recovery, including burning and re-issuance mechanisms to address hacking risks and theft, as well as robust business continuity plans.

 

·           Product Providers should retain ultimate responsibility for the management and operational soundness of the tokenisation arrangement and record keeping of ownership, even where functions are outsourced to third parties. Upon request by the SFC, Product Providers must demonstrate smart contract integrity, provide third-party audits, and obtain satisfactory legal opinions.

(b)  Disclosure

Offering documents for tokenised Products must clearly disclose:

·           the tokenisation arrangement, particularly on whether on-chain or off-chain settlement is final;

 

·           the ownership representation of the tokens (including legal and beneficial title of the tokens, ownership of/interests in the Product); and

 

·           the risks associated with the tokenisation arrangement, including cybersecurity risks, system outages, undiscovered technical flaws, evolving regulatory landscape, and potential challenges in the application of existing laws.

 

(c)   Intermediaries

Only regulated intermediaries (i.e. SFC-licensed licensed corporations or registered institutions) may distribute tokenised Products.

(d)  Staff competence

Product Providers must confirm that they have at least one competent staff member to operate and/or supervise the tokenisation arrangement and manage the associated ownership and technology risks.

 

Prior consultation and approval

The 1^st Circular extends prior consultation obligations as follows:

·           Prior consultation with the SFC is mandatory for: (i) new investment products that have tokenisation features and plan to seek SFC’s authorisation; and (ii) existing Products seeking to introduce tokenisation features.

 

·           Product Providers must also engage in prior consultation with the SFC for any subsequently proposed material changes to an existing SFC-approved tokenisation arrangement. Prior SFC approval may also be required for certain specific changes, such as adding a new tokenised unit/share class to the offering documents of an SFC-authorised fund and offering it to the public of Hong Kong.

Takeaways

The Circulars mark a significant milestone in Hong Kong’s development as a digital assets hub. Together, they establish an end-to-end regulatory framework enabling tokenised Products to move beyond primary issuance into regulated, 24/7 secondary market circulation — an approach that few other jurisdictions have yet attempted at retail scale. This newsletter has focused on the 1^st Circular, and we shall cover the 2^nd Circular in our upcoming newsletter. If you have any queries on the above or require assistance in navigating the new framework, please feel free to contact our Corporate & Commercial Department.

 

For enquiries, please feel free to contact us at:

E: regcom@onc.hk                                                             T: (852) 2810 1212 W: www.onc.hk                                                                    F: (852) 2804 6311 19th Floor, Three Exchange Square, 8 Connaught Place, Central, Hong Kong

Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.

Published by ONC Lawyers © 2026