In a move signaling a shift towards embracing innovation, regulators in three of Asia’s biggest financial markets have expressed their welcoming stance towards tokenized securities. These securities, which encompass traditional investment products like stocks, bonds, and mutual funds but operate on distributed ledger technology (DLT), are seen as a key to unlocking efficiency, disintermediation, liquidity, and financial inclusion in markets.
At the annual conference of the Asia Securities Industry & Financial Markets Association (ASIFMA) in Hong Kong, representatives from the Hong Kong Securities and Futures Commission (SFC), Monetary Authority of Singapore (MAS), and Financial Services Agency of Japan (JFSA) shared insights on handling the growing interest in tokenizing financial instruments. They emphasized the principle of “same business, same risks, same rules” as guiding their approach.
Julia Leung, CEO of the SFC, expressed the commission’s openness to innovation, stating, “We set very clear expectations, and we welcome the industry to come and discuss with us [about] their novel products.” The SFC has taken pioneering steps in establishing conduct and due diligence requirements for tokenized securities, aiming to open up retail investors’ access to such products while ensuring regulatory oversight.
The use of DLT for recording, transferring, and settling products on the blockchain has gained government endorsement in Hong Kong. Circulars released in November outlined requirements for tokenized securities, including notifying the SFC in advance and conducting smart contract audits. Analysts predict a significant growth in tokenized digital securities, with forecasts ranging from US$4 trillion to US$5 trillion by 2030, according to a report from McKinsey & Co.
Regulators stress that issuers of tokenized financial products must adhere to the same, if not higher, conduct requirements and accountability as traditional products. “We’re actually signposting to the industry that we welcome responsible innovation, as long as the standard of investor protection is the same, if not higher, than all the traditional products,” Leung added.
The MAS also sees the potential benefits of DLT, such as efficiency, disintermediation, more liquidity, and financial inclusion. It is collaborating with the industry through a regulatory sandbox to test innovations in cross-border repurchase agreements, wealth management products, and trade finance.
Toshiyuki Miyoshi, Vice Commissioner for International Affairs at JFSA, highlighted the importance of segregating customer assets and tokenized securities at the intermediary level for investor protection. He emphasized that while there are similar risks and challenges in regulating tokenized securities and traditional securities, collaboration among regulators and the private sector is crucial.
Asian regulators’ openness to tokenized securities reflects a growing recognition of the potential benefits of DLT in the financial industry. As they navigate the complexities of this emerging space, collaboration among stakeholders will be key to ensuring a robust regulatory framework that promotes innovation while safeguarding investor interests.
(Source: SCMP | Nikkei Asia)
