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 internal controls. Intermediaries are expected to establish 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 compliance with anti-money laundering and counter-terrorism financing regulations.
Furthermore, the circular highlights the need for intermediaries to have adequate systems and controls in place to safeguard clients’ assets. This includes implementing secure custody arrangements for tokenized securities and maintaining proper records of clients’ holdings.
Another key aspect covered in Part 2 is investor protection. The SFC emphasizes that intermediaries must provide clear and accurate information to investors regarding the nature, risks, and potential returns of tokenized securities. They should also ensure that investors have a clear understanding of the technology underlying tokenized securities and any associated risks.
The circular also addresses the issue of market integrity. Intermediaries are expected to have proper systems and controls in place to prevent market manipulation, insider trading, and other fraudulent activities. They should also cooperate with the SFC in its efforts to monitor and regulate the tokenized securities market.
Part 2 of the circular concludes by highlighting the SFC’s commitment to fostering innovation in the financial industry while ensuring investor protection and market integrity. The SFC acknowledges the potential benefits of tokenized securities but emphasizes the need for intermediaries to operate within a robust regulatory framework.
In summary, Part 2 of the SFC Circular provides comprehensive guidelines for intermediaries engaging in tokenized securities activities. It covers licensing requirements, risk management, investor protection, and market integrity. By following these guidelines, intermediaries can navigate the evolving landscape of tokenized securities while ensuring compliance with regulatory requirements and safeguarding investor interests.
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