Reflections on Compliance Amid the RWA Boom in Hong Kong

Written by: FinTax

I. Introduction

On February 13, Esperanza Securities received approval from the Hong Kong Securities and Futures Commission (SFC) to launch an entertainment-assets tokenization (tokenization) business for the revenue rights from Huang Kaiping’s 40th anniversary Red House concert. On February 24, the RWA project for the property of the Derlin Mansion (Central) under Derlin Holdings was approved for issuance. At the beginning of 2026, in Hong Kong’s Central core commercial district, high-quality commercial real estate, as well as the “Red House” concert tickets and revenue rights—praised as an Asian benchmark for popular culture—were “on-chain” in succession in the short term, becoming the first RWA projects to be launched in Hong Kong in their respective fields. This phenomenon indicates that RWA (Real World Assets, real-world assets) is gradually moving from the concept proof (PoC) stage into a new phase of commercialization and scaled implementation.

Hong Kong, with its unique “one country, two systems” advantage, a well-established common law framework, and a forward-looking regulatory structure, is becoming an important global hub where RWA assets converge. Compared with traditional credit and IPOs, issuing RWA in Hong Kong is not only a strategic choice to broaden financing channels and reduce financing costs, but also an important path to achieve global pricing of assets and release liquidity. However, behind financial innovation often lie complex legal and tax compliance risks. RWA is not simply “old wine in a new bottle.” It requires issuers to build a comprehensive compliance system across multiple dimensions—such as underlying-asset look-through, smart contract audits, cross-border data compliance, and anti-money laundering (AML). From a professional perspective, this article systematically reviews the evolution of RWA in Hong Kong and the mainstream pathways, analyzes the tax implications and regulatory logic involved, and examines the compliance risks behind the financing dividends of RWA.

II. From Tokenized Assets to Real Estate and Cultural & Entertainment: The Evolution Path of Hong Kong RWA

Looking back at the history of RWA in Hong Kong, a clear evolution trend emerges—from standardized financial products to a broader extension into real-world assets. This reflects not only the deepening integration of blockchain technology and financial engineering, but also the governance wisdom of Hong Kong’s regulators that balances stability with progress.

First stage: A trial of tokenized assets backed by credit (2022-2023)

The start of RWA in Hong Kong was not initiated by grassroots players, but rather pushed top-down by the government. In February 2023, the Hong Kong Special Administrative Region government successfully issued a tokenized green bond worth HK$800 million (Project Evergreen), which was among the first batch of tokenized green bonds issued by governments globally (HKMA, 2023). The characteristic of this stage is that the underlying assets are highly standardized (bonds), the credit ratings are high (sovereign credit), and participation is limited (only institutional investors). The core purpose is to test whether distributed ledger technology (DLT) can reduce costs and improve efficiency in traditional financial infrastructure such as clearing and settlement.

Second stage: On-chain private credit and fund units (late 2023)

With the initial validation of the infrastructure, the SFC issued multiple circulars in succession targeting intermediaries engaging in tokenized securities-related activities, as well as circulars on tokenization of SFC-authorized investment products (SFC, 2023 a; SFC, 2023 b). The market began to shift its focus toward income-generating assets such as private credit and money-market funds (e.g., tokenized U.S. Treasuries). In this stage, RWA plays the role of a bridge connecting Web 3 capital with traditional U.S. dollar income-generating assets, opening the channel for on-chain funds to access a risk-free rate (Risk-free Rate).

Third stage: Reconstructing the value of non-standard assets (real estate and cultural & entertainment IP) (2026)

At the beginning of 2026, the first batch of real estate and cultural & entertainment RWA projects received approval from the SFC, further expanding the application scenarios of RWA in Hong Kong. Commercial real estate itself has relatively high capital thresholds and lower liquidity. After RWA is fractionally tokenized, professional investors can participate in their investment and distributions at a relatively lower threshold. At the same time, cultural & entertainment assets such as concert and film copyrights often have cash flows that are clearly cyclical and uncertain. Putting box-office revenue rights on-chain can merge consumer behavior with investment behavior. Fans are both consumers and ecosystem investors; this dual “finance + consumption” attribute greatly broadens the pre-financing channels for the cultural & entertainment industry.

In summary, the core commercial value of RWA has gone beyond optimizing payment and settlement efficiency, and is increasingly oriented toward releasing liquidity premiums. Assets that are less liquid and hard to split within traditional financial systems often have even greater room for value appreciation under the RWA framework.

III. How do real-world assets get “on-chain”? Deconstructing the full RWA process

(A) Case study analysis: Taking the Central Derlin Mansion RWA as an example

In February 2026, Derlin Holdings (1709.HK) disclosed that it plans to tokenize its interests in a limited partnership fund holding Hong Kong Central commercial property (i.e., the “Derlin Mansion LPF”). It has already obtained regulatory recognition from the SFC of “no further comments,” and the interests can be distributed by licensed institutions to eligible professional investors (PI). As a model of the integration of traditional commercial real estate and digital finance, the implementation process for such projects typically includes the following steps:

1. Asset segregation and SPV establishment: The issuer first needs to establish a special purpose vehicle (SPV) in Hong Kong or offshore and legally transfer the ownership or revenue rights of the commercial property to the SPV. The core purpose of this step is to isolate the asset from the credit risk of the issuer’s parent company (developer).

2. Third-party due diligence and valuation: Engage professional institutions to conduct financial and legal due diligence on the SPV and its underlying properties. Independent valuers will issue property valuation reports to ensure that the token price has a fair basis.

3. Oracle mechanism design: The value of commercial real estate and rental income occur off-chain. The project needs to introduce a trusted “Oracle” to periodically synchronize real-world rental cash flow, latest valuations, and other data onto the blockchain, ensuring that token holders obtain real information.

4. Smart contract development and audit: Write into smart contracts the asset distribution logic (e.g., quarterly distribution of rent) and transfer restrictions (e.g., transactions limited to HK-compliant PIs). Before deploying the contract, a security audit must be conducted according to law.

5. Token minting and issuance: Mint security tokens representing SPV equity or debt on Ethereum or other public chains/consortium chains. Each token represents a specific proportion of the fund’s economic benefits and voting rights.

6. Distribution by licensed institutions and secondary trading: Relying on Hong Kong licenses 1 (securities trading) and 4 (advising on securities), and with SFC approval to have financial institutions approved to underwrite and distribute tokens for virtual asset businesses. In the future, token circulation in the secondary market can be conducted on a compliant VATP.

(B) Introduction to the mainstream paths of Hong Kong RWA

Based on the nature and legal structure of underlying assets, Hong Kong RWA currently mainly falls into three major paths. Different paths have differences in compliance and tax implications.

Dimension

Path 1: Asset-Backed Token

Path 2: Fund-Linked Token

Path 3: Debt-Based Token

Underlying architecture: Tokens directly represent fractional ownership of underlying physical assets (e.g., specific artworks, gold). Tokens represent shares in a limited partnership fund (LPF) or units of an open-ended fund (OFC) that hold specific assets (e.g., commercial real estate). Tokens represent the right of recourse to fixed or floating income generated from underlying assets (e.g., Red House concert box office revenue rights, accounts receivable). Legal substance: Transfer of real property rights/ownership. Ownership of fund units/equity. A creditor-debtor relationship. Core advantages: Extremely simple architecture, high degree of disintermediation, and investors directly access underlying assets. Highest acceptance in traditional finance, clear boundaries of rights and responsibilities, with mature legal framework protections for funds. High flexibility—interest rate coupon structures can be customized based on underlying asset cash flows, and credit rating processes are easier. Main disadvantages: There are large ambiguities at the legal level in establishing clear title to and mapping real-world assets to on-chain representations; if physical damage occurs, pursuing rights is difficult. High compliance costs—requires setting up compliance fund entities and is constrained by the Securities and Futures Ordinance, typically limited to professional investors (PIs). Severely dependent on the issuer’s credit backing and the underlying asset’s real cash-flow “bloodline” capability, with a high risk of default. Applicable scenarios: Highly standardized movables such as gold, branded watches, and artworks. On-chain commercial real estate hubs like Derlin Mansion in Central, and infrastructure REITs. On-chain Red House concert revenue rights and supply-chain finance factoring assets.

© Corresponding regulatory requirements

The regulatory logic of the SFC for RWA can be summarized in twelve words: “Same business, same risks, same rules.” This means that regulators will not relax their vigilance just because the asset wears the “blockchain” “disguise”; instead, they apply look-through regulation to get to the economic substance of the underlying asset.

First, at the asset classification level, according to a circular issued by the SFC in November 2023 titled “Circular on Tokenized SFC-authorized Investment Products,” if the underlying assets of an RWA are traditional stocks, bonds, or fund units, the corresponding tokens will be classified as “tokenized securities” (Tokenised Securities). In principle, issuance of such products would apply the Hong Kong Securities and Futures Ordinance requirements for issuance, disclosure, and licensing for traditional securities.

Second, for non-standard assets, if the tokenization structure embeds complex derivatives logic or special transfer restrictions, the SFC tends to treat them as “complex products.” This requires distribution institutions (brokers/banks) to perform appropriate suitability assessments when recommending to clients; subscription is limited to professional investors, for example, professional investors individuals holding liquid assets of more than HK$8 million.

On the technical and operational compliance front, regulators generally require issuers to conduct independent third-party audits of smart contracts, to prevent asset risks arising from code vulnerabilities or hacker attacks from the technical source. Meanwhile, on AML, issuers and virtual asset trading platforms must fully implement KYC procedures, strictly comply with the Travel Rule, and ensure that the identities of the sender and receiver of each on-chain transaction are transparent, traceable.

(D) Relevant tax implications

Path 1 (Asset-Backed Token):

This path mainly involves profits tax. If the issuer directly sells tokens representing Hong Kong local tangible assets (e.g., machinery equipment), this action may be regarded as a sale taking place in Hong Kong. Under the Hong Kong Inland Revenue Ordinance, the resulting profit is subject to profits tax, generally applying a standard tax rate of 15% or 16.5% depending on the entity type.

Path 2 (Fund-Linked Token):

At the level of funds and tokens, tax treatment is more complex. Under the Hong Kong Stamp Duty Ordinance, for the transfer of shares of an unlisted SPV (or Hong Kong securities), both the buyer and seller must each pay ad valorem stamp duty of 0.1% (Chapter 117 of the Stamp Duty Ordinance). When fund units circulate in the form of tokens, the on-chain transfer of the tokens may constitute a “transfer of Hong Kong securities” in a legal sense, requiring the payment of an additional 0.1% stamp duty. In addition, if the relevant fund meets the conditions for the Unified Fund Exemption (UFE), profits obtained from transactions that qualify may be exempt from profits tax, thereby achieving tax optimization.

Path 3 (Debt-Based Token):

Tax treatment for this path involves the classification of interest income at the investor level. Taking a cultural & entertainment-type RWA project as an example, distributions received by investors holding the Token of concert revenue rights are generally, in tax substance, classified as interest income. If the investor is a Hong Kong local entity, it is necessary to assess whether the interest is sourced from Hong Kong to determine whether it falls within the scope of profits tax. If the investor is an individual, under Hong Kong’s current tax regime, personal interest income tax is generally not imposed.

IV. Behind the RWA boom: Policy focus and compliance insights

(A) Policy focus

RWA does not exist in a vacuum, and its prosperity cannot be separated from macro policy tailwinds. To understand the current enthusiasm for issuing RWA in Hong Kong, it must be examined against the broader backdrop of regulatory differences between Mainland China and Hong Kong, as well as global upgrades to financial infrastructure.

1. Mainland China: Prohibited domestically, regulated abroad

Mainland China has maintained clear regulatory red lines on the issuance, trading, and financing activities involving virtual currencies. The policy focus is on enabling the technology industry and promoting and popularizing central bank digital currency (CBDC). The “Notice on Further Preventing and Addressing Risks Related to Virtual Currencies,” issued on February 6, 2026, further clarifies the regulatory principles for RWA: if, within Mainland China, real-world asset tokenization activities are carried out, and related intermediary or information technology services are provided, such activities are suspected of illegal issuance of tokenized notes, unauthorized public offering of securities, illegal operation of securities and futures business, illegal fund-raising, and other illegal financial activities, and should be prohibited. The exclusion applies only to related business activities carried out based on specific financial infrastructure with approval from the competent business authorities in accordance with regulations. Soon after, the SFC issued “Regulatory Guidance on the Issuance of Asset-Backed Securities Tokens from Mainland China Assets to be Issued Outside Hong Kong” (SFC Announcement [2026] No. 1), establishing a dedicated regulatory framework for token issuance abroad in a securitized form using Mainland assets. The above arrangements reflect the policy thinking of regulators: “prohibited domestically, regulated abroad.” While prohibiting RWA activities domestically, they also leave some space for Mainland assets to comply and exit to Hong Kong.

2. Hong Kong: A regulatory sandbox for financial innovation

Since the publication in 2022 of the “Policy Statement on the Development of Virtual Assets in Hong Kong,” Hong Kong has built a comparatively clear and friendly policy environment for RWA globally. In November 2023, the SFC issued the “Circular on Tokenized Securities-Related Activities by Intermediaries” and the “Circular on Tokenized SFC-authorized Investment Products,” setting the regulatory tone for RWA in Hong Kong. In 2024, the Hong Kong Monetary Authority (HKMA) launched the Ensemble sandbox program, focusing on application testing of tokenized money in inter-institutional RWA settlement scenarios, and promoting the development of financial infrastructure that allows tokenized money and assets to interoperate. In August 2025, the “Stablecoin Ordinance” officially took effect, establishing a dedicated licensing regime for stablecoin issuers linked to fiat currencies. Stablecoins provide a compliant pricing anchor and payment instrument for RWA transactions, and this ordinance helps further remove middle-layer obstacles to real-world asset tokenization.

(B) Compliance implications for issuing RWA in Hong Kong

Given the financing opportunities brought by RWA, project sponsors issuing RWA in Hong Kong cannot stop at storytelling enthusiasm; they also need to build a complete compliance framework at the same time.

On general compliance: first, the authenticity and independence of the asset structure. In the design of cultural & entertainment revenue rights or real-estate-type RWA, if an issuer promises fixed returns in the name of tokens but does not realize true asset segregation in the underlying layer, it is likely to be identified as illegal fund-raising or an unauthorized collective investment scheme under Hong Kong’s regulatory framework. Therefore, an independent third-party asset custodian can be introduced to reduce the compliance risks of fund-pool operations and rigid redemption. Second, the hard constraints of AML on-chain. To meet AML requirements, mechanisms must be established for executable customer due diligence, wallet address screening, transaction monitoring, and identification of abnormal activity.

On tax compliance: first, the token’s attributes affect tax classification, requiring reasonable tax planning. When reviewing token transactions, the Hong Kong Tax Department may look through the technical wrapper of smart contracts to directly examine their economic substance. Whether it is “real property rights,” “equity,” or “right to distributions (debt),” will affect tax classification and the applicability of preferential policies. Second, reporting obligations under cross-border tax information exchange mechanisms. Under the Hong Kong CRS (Common Reporting Standard for Automatic Exchange of Information on Financial Accounts) and CARF (Crypto Asset Reporting Framework), qualifying financial institutions/crypto asset service providers must fulfill their customer due diligence and information reporting obligations under their scope. Third, compliant relief of cross-border withholding taxes. When Mainland cultural & entertainment assets or real-estate projects generate cash flows that are remitted to Hong Kong SPVs, cross-border withholding tax is an important factor affecting investors’ return rates. Based on this, project sponsors should proactively assess whether preferential tax rates under the “Arrangement between the Mainland and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income” can be applied—for example, seeking to reduce dividend withholding tax from 10% to 5%, or reducing withholding tax on royalties to 7%. However, the prerequisite for applying preferential tax rates is that the Hong Kong SPV needs to plan in advance, obtain a certificate of Hong Kong resident enterprise (CoR), and meet the strict substantive identification standards for the “beneficial owner” identity set by Mainland tax authorities.

V. Conclusion

For Mainland companies holding high-quality underlying assets, issuing RWA in Hong Kong provides a brand-new pathway to expand financing channels and access global liquidity. But the real key is not whether real-world assets can be “on-chained”; it is whether a robust implementation framework can be established among legal, tax, and commercial arrangements. Hong Kong has already built the supporting infrastructure and regulatory environment. In this early-stage RWA wave, the real winners will be those who can navigate complex compliance requirements.