On 15 June 2026, the Hong Kong Securities and Futures Commission (SFC) released its framework for tokenized funds, clarifying how existing authorization and licensing requirements apply to fund structures that use distributed ledger technology (DLT) for ownership representation, transfer, or record-keeping.

The framework does not create a new asset class. It treats a tokenized fund as a fund in substance, with tokenization as a distribution or operational layer. This preserves the SFC's existing regulatory architecture while introducing targeted expectations around custody, disclosure, and technology risk management.

Key points:

• Tokenized fund units must be legally equivalent to conventional units.
• Custody arrangements must meet SFC safekeeping standards.
• Fund managers must demonstrate operational resilience of the tokenization platform.
• Offering documents must explain token mechanics, redemption rights, and risks.
• Secondary trading remains subject to existing securities dealing requirements.

The framework distinguishes between funds that tokenize their units and funds that invest directly in tokenized assets. A fund issuing tokenized units while holding traditional assets remains subject primarily to the Code on Unit Trusts and Mutual Funds (UT Code).

A fund that invests in tokenized securities or virtual assets may also trigger the Proforma Terms and Conditions for Licensed Corporations and, where relevant, the virtual asset service provider (VASP) regime.

Custody is the central operational concern. The SFC expects tokenized fund assets to be isolated from the fund manager's own assets and protected against unauthorized transfers. Where private keys control tokenized units or underlying assets, key management policies must address:

• Multi-signature or multi-party computation arrangements
• Geographic and institutional segregation of key shards
• Disaster recovery and business continuity procedures
• Independent audit and attestation of controls

The trustee or custodian retains fiduciary responsibility regardless of whether a third-party technology provider operates the infrastructure.

The SFC emphasizes that tokenization should not obscure risk. Offering documents must explain in plain language how tokens are created, transferred, and redeemed; what happens in a fork, protocol failure, or smart contract exploit; and how investors enforce their rights.

Distributors must ensure suitability assessments capture the additional technological and liquidity risks inherent in tokenized products.

For licensed institutions, the framework lowers uncertainty but raises the bar for operational readiness. The first wave of authorized tokenized funds is expected from established asset managers with robust compliance frameworks and simple, liquid underlying assets.

Tokenized money market funds are the likely early test case: the assets are well understood, redemption expectations are short-term, and the efficiency gains from programmable settlement are material.

The SFC's tokenized fund framework confirms Hong Kong's preference for regulation that accommodates innovation within existing investor-protection guardrails. Firms that treat tokenization as a technology implementation, rather than a regulatory shortcut, will be best positioned to move first.

Standard Kepler advises fund managers, trustees, and distributors on the structuring, licensing, and operational design of tokenized fund offerings in Hong Kong. For a detailed readiness assessment, please contact our team.