A token representing a fund unit can move between blockchain wallets while its legal ownership record remains off-chain.
For a Hong Kong manager adding tokenisation to an existing fund, that creates a question to resolve before launch: when the token moves, what legally changes hands?
Hong Kong applies its existing fund rules to products with a tokenisation layer. The Securities and Futures Commission (“SFC”) takes a see-through approach, so the underlying fund must still meet every applicable product requirement. Additional obligations address the technology and its operation. This gives incumbent managers a familiar regulatory starting point, while making the relationship between the token and the fund register a central implementation question.
Finality: When does a transfer become final?
The SFC requires offering documents to explain the nature of token ownership, including legal and beneficial title and the interest represented in the underlying product. They must also state whether settlement on-chain or off-chain is final and irreversible (SFC, 2026).
These disclosures address a substantive limitation. For most tokenised funds currently available in Hong Kong, legal ownership remains linked to the fund’s official register rather than blockchain transfers alone. However, recent legal reviews and Companies Registry guidance for tokenised bonds indicate that Hong Kong is increasingly prepared to accept DLT-based records as meeting statutory record-keeping requirements in certain contexts. This could support broader adoption of native on-chain ownership models over time (Companies Registry, 2026). HSBC used this guidance to issue the first natively tokenised structured note in Hong Kong in July (Clifford Chance, 2026). A manager therefore needs to establish how the records work together, how a transfer is reflected in the register, and how any discrepancy would be resolved.
Investors need to know when their rights take effect.
For an incumbent manager, this makes the transfer agency function central to the design. The technology must support an ownership model that the fund can explain and administer, and decisions about the register and settlement finality should come before the choice of platform.
The Financial Services and the Treasury Bureau (“FSTB”) and the Hong Kong Monetary Authority released the results of the first phase of their legal and regulatory review in June 2026. Conducted under the Government’s LEAP framework, the review covered settlement, registration, and record-keeping, starting with tokenised bonds (Financial Services and the Treasury Bureau and Hong Kong Monetary Authority, 2026). The SFC’s earlier guidance was deliberately technology agnostic to accommodate these developments. The FSTB and Companies Registry guidance may now have opened the door for funds to test blockchain as their primary ownership record. The off-chain and on-chain relationship has to be deliberately established and disclosed.
What custody must now protect
Tokenisation adds another object to safeguard. The fund’s underlying assets remain subject to their existing custody arrangements. The unit-tokens need protection through controls over cryptographic keys, smart contracts, and ledger records.
Following the results of the FSTB and SFC’s 2025 consultation, market participants are anticipating amendments to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (“AMLO”) setting out the responsibilities of virtual asset custodians. The proposed regime would establish the SFC as the primary regulator of virtual asset custodians, with requirements covering key and wallet management, cybersecurity, and capital (Financial Services and the Treasury Bureau and Securities and Futures Commission, 2025).
That additional responsibility reaches into fund governance. Who holds the keys? How are they segregated? What happens if the technology vendor fails? These questions bear directly on the manager’s ability to maintain proper ownership records, so they cannot sit solely with an IT team, external supplier, or digital custody provider.
Outsourcing does not transfer accountability.
The SFC keeps responsibility for the soundness of the tokenisation arrangement and for proper ownership records with the product provider, even where a technology vendor carries out the tokenisation. On request, the manager must be able to demonstrate the integrity of its smart contracts and obtain a third-party audit or verification and a satisfactory legal opinion. For a fund that also holds virtual assets, custody may be split across as many as three regulatory regimes at once.
Transfer controls need to fit the fund
Bearer tokens are not permitted. Holders in both primary and secondary markets must undergo customer due diligence and anti-money laundering checks. Public permissionless networks require additional controls, and a permissioned token on a public blockchain can restrict transfers to eligible holders, helping the technology reflect the fund’s distribution requirements.
Internal supervision remains necessary. The SFC expects at least one competent individual to operate or oversee the tokenisation arrangement, even where an external provider supplies the infrastructure.
Each step from issuance to redemption needs an operational process and a clear legal effect. Working through those steps can expose gaps that a platform demonstration would leave unanswered.
Tokenised vs. conventional funds: A Hong Kong field guide compares the legal status, ownership records, and custody arrangements of conventional funds and their tokenised equivalents.
