Tokenisation of Real-World Assets in Hong Kong: Legal and Regulatory Framework

The tokenisation of real-world assets (RWA) — the process of representing ownership of or rights to a tangible or financial asset by means of a blockchain-based token — has moved rapidly from theoretical concept to live market practice. Hong Kong has positioned itself as an early and proactive regulatory environment for RWA tokenisation, with the SFC and HKMA issuing guidance and launching initiatives specifically designed to facilitate the development of a regulated tokenised asset market. For asset owners, fund managers, and financial institutions exploring tokenisation, understanding Hong Kong's legal and regulatory framework is essential before any issuance or distribution.

This guide explains the key legal concepts and regulatory requirements applicable to RWA tokenisation in Hong Kong.

What Is Being Tokenised?

RWA tokenisation encompasses a wide range of asset classes. In practice, the most common categories of RWAs being tokenised in Hong Kong include:

• Investment funds: tokenised unit trusts, hedge fund interests, private equity fund interests, and money market funds (the HKMA and SFC have both focused significantly on tokenised fund products)
• Debt instruments: tokenised bonds, green bonds, and structured notes (the Hong Kong Government issued a tokenised green bond in February 2023 under HKD 800 million, a landmark issuance)
• Real estate: fractional ownership of commercial or residential property, or interests in real estate holding entities
• Commodities and precious metals: tokenised gold, silver, and other commodities
• Private credit: tokenised loan participations and receivables
• Art and collectibles: fractional interests in high-value artworks or collectible assets

The asset class determines the applicable regulatory regime — a tokenised bond is regulated as a debt security, a tokenised fund interest is regulated as a collective investment scheme, and a tokenised property interest may engage land registration and conveyancing requirements in addition to securities regulation.

The SFC's Regulatory Approach to Tokenised Securities

The SFC's position, stated clearly in its series of circulars on tokenised investment products (including the October 2023 circular on the authorisation of tokenised investment products), is that the regulatory treatment of a digital asset is determined by its economic substance, not its technology wrapper. A token that confers rights equivalent to a share, debenture, fund unit, or other security is a "security" within the meaning of the Securities and Futures Ordinance (SFO) (Cap. 571), regardless of whether it is issued on a blockchain.

This means that:

• Issuing or offering tokenised securities to the public in Hong Kong (or to Hong Kong investors) triggers the SFO's prospectus regime or the authorisation requirements for collective investment schemes
• Dealing in, advising on, or managing tokenised securities requires SFC licensing (Type 1, 4, 7, or 9 as appropriate)
• Operating a trading platform for tokenised securities requires SFC licensing as a VATP (virtual asset trading platform), or specifically as a recognised exchange company

The SFC has issued specific guidance applying this framework to tokenised investment products, including requirements for: disclosure documents; safe custody arrangements for the underlying assets and the token ledger; investor eligibility (professional investors only for many tokenised products); and cybersecurity and operational controls.

Security Token Offerings (STOs)

A security token offering (STO) is a public or private offering of tokens that are securities. STOs in Hong Kong must comply with the SFO's offer and distribution rules, which means:

For private placements to professional investors only (a common structure for STOs): the offer can be made without a prospectus under the exemption in section 103 of the SFO, provided it is made only to professional investors (as defined: individuals with a portfolio of HK$8 million or above, or institutional investors). The offering document is not required to be registered but should contain sufficient disclosure to satisfy due diligence and AML requirements.

For public offers: a prospectus registered with the Companies Registry is required under the Companies (Winding Up and Miscellaneous Provisions) Ordinance (CWUMPO), or authorisation as a collective investment scheme under Part IV of the SFO is required if the STO represents fund interests. Public STOs are complex and expensive, and are rarely used in practice for early-stage tokenisation projects.

Distribution of STOs (on a primary or secondary basis) to Hong Kong investors requires SFC-licensed intermediaries. Overseas exchanges or platforms offering tokenised securities to Hong Kong investors are subject to the SFC's regulatory perimeter regardless of where they are established.

Tokenised Investment Products: SFC Authorisation

The SFC has developed a framework for the authorisation of tokenised investment products that are offered to retail investors. Key requirements include:

• The underlying assets must be eligible for traditional SFC authorisation (i.e., the tokenised version must satisfy the same eligibility criteria as the conventional version of the same product)
• Tokenisation must occur at the wrapper level (the fund or structured product level), not at the underlying asset level — tokenising the underlying portfolio positions raises additional complexity that the SFC has not yet fully addressed
• The tokenisation technology must meet specific cybersecurity, resilience, and operational standards
• A smart contract audit must be conducted by a qualified third party
• Custody arrangements for the token register and the underlying assets must be maintained with SFC-approved or equivalent custodians
• The offering documents must clearly describe the tokenisation mechanism and associated risks

Several major asset managers, including HSBC, Harvest Fund Management, and China Asset Management, have launched or obtained authorisation for tokenised fund products in Hong Kong under this framework.

Tokenised Bonds

Tokenised bonds are the most developed segment of the Hong Kong RWA tokenisation market, anchored by the Hong Kong Government's pioneering tokenised green bond issuances. Legal structuring of a tokenised bond involves: issuing the bond in conventional legal form (with a trust deed, paying agent, and clearing arrangements) and simultaneously recording ownership or entitlement on a permissioned blockchain ledger; or issuing the bond exclusively on-chain with smart-contract-governed payment mechanics.

For distributed ledger technology (DLT) bond structures, Hong Kong's legal framework supports the use of electronic documents for debt securities under the Electronic Transactions Ordinance (Cap. 553), and the HKMA has worked with the market to develop DLT-based settlement systems. CMU (Central Moneymarkets Unit) tokenised bond settlement is operational for eligible instruments.

Project Ensemble: HKMA's Tokenisation Infrastructure Initiative

The HKMA launched Project Ensemble in 2024 to develop interoperable wholesale central bank digital currency (wCBDC) infrastructure for tokenised asset settlement. Project Ensemble's sandbox focuses on four tokenisation use cases: tokenised deposits, tokenised green bonds, tokenised carbon credits, and tokenised treasury management. Participation in Project Ensemble is open to banks, asset managers, and technology providers, and the project is developing technical and legal standards for tokenised asset transactions in Hong Kong.

Project Ensemble is significant because settlement of tokenised assets using tokenised money (rather than conventional cash) is a key enabler of DvP (delivery versus payment) efficiency, and the HKMA's involvement signals regulatory support for building the necessary infrastructure.

Legal Ownership and Title

One of the most fundamental legal questions in RWA tokenisation is: what legal rights does a token confer, and how are those rights enforced? In Hong Kong, blockchain tokens do not automatically confer legal ownership of the underlying asset — the legal title to real property, company shares, or other assets continues to be governed by conventional Hong Kong law (Land Registration Ordinance, Companies Ordinance, etc.). Tokens typically represent either: (a) a beneficial interest in the underlying asset held by a custodian or trustee; (b) a contractual right against the issuer; or (c) in some structures, a direct legal interest (for example, where the tokenised instrument is itself the legal record of title for a type of asset that can be registered on-chain).

The design of the legal relationship between token holders and the underlying asset is critical and requires bespoke structuring. For real estate tokenisation, this typically involves a special purpose vehicle (SPV) holding the property, with SPV interests tokenised and held for token holders under a trust or custodial arrangement. For fund tokenisation, the token represents an interest in the fund vehicle, which in turn holds the investment portfolio.

Key Legal and Structural Considerations

For any RWA tokenisation project, the following legal and structural matters require careful attention. First, the characterisation of the token under Hong Kong law determines the regulatory regime and must be settled before any offering or distribution. Second, the legal mechanism for linking token ownership to underlying asset rights must be documented with precision — ambiguous documentation creates legal risk at the point of enforcement or insolvency. Third, smart contract code is not a substitute for legal documentation: material terms should be replicated in legally enforceable off-chain agreements. Fourth, AML/CFT obligations apply to the distribution and trading of tokenised securities, and KYC must be conducted at both the token issuance and transfer levels. Fifth, cross-border distribution of tokenised assets must account for the regulatory requirements of each jurisdiction where tokens are offered or token holders are located.

How Alan Wong LLP Can Help

Alan Wong LLP advises on the legal and regulatory aspects of RWA tokenisation in Hong Kong, including: regulatory characterisation of token offerings; structuring tokenised fund and debt issuances; drafting token issuance documentation and investor agreements; advising on SFC licensing requirements for tokenised product distribution and trading; and advising on AML/CFT obligations for tokenised asset platforms. We work with asset managers, financial institutions, technology platforms, and asset owners at all stages of the tokenisation lifecycle, from initial structuring and regulatory engagement through to distribution and secondary market operations.