The SFC’s circular acknowledges the interest in tokenizing traditional financial instruments using distributed ledger technology (DLT). While tokenization offers benefits, it also presents risks therefore, the SFC supports intermediaries conducting pilots in tokenizing securities and aims to address associated risks. Tokenized securities are subject to existing regulations, and intermediaries should manage ownership and technology risks. Due diligence on tokenized securities, issuers, and vendors is crucial as is adequate disclosure of material information. The complexity of the tokenization is assessed based on the underlying security. The PI-only restriction is not mandatory, but prospectus and investment offer regulations apply. Fund managers investing in tokenized securities meeting the “de minimis threshold” are exempt from certain conditions unless they also invest in virtual assets meeting the same threshold.
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