Exploring the Restrictions and Feasibility of Issuing RWA for Mainland Assets in Hong Kong

Recently, the demand for consulting on RWA projects has surged, involving various fields such as agricultural products, real estate, precious metals, and even some purely conceptual projects. However, under the current regulatory environment, aside from projects strictly reviewed under the Hong Kong regulatory sandbox, other RWA projects carry a higher risk, especially those aimed at mainland residents.

This article aims to clarify the feasibility of mainland assets in the Hong Kong sandbox, to assist relevant parties in conducting business more efficiently.

Basic Restrictions and Judgment Criteria for Mainland Assets to be Considered as RWA

Although assets located on the mainland and primarily operated for mainland residents can be done as RWA, there are still certain restrictions on issuance in the Hong Kong sandbox. Based on practical experience, the following three types of assets are not suitable for RWA:

1. Assets that do not comply with Hong Kong legal requirements
2. Assets that do not comply with the laws and regulations of the mainland.
3. Assets that are not suitable for issuance in Hong Kong at present.

dual compliance principle

Mainland assets issued as RWA in Hong Kong must comply with the "dual compliance principle", meaning that the underlying assets must be compliant in both Mainland and Hong Kong.

Hong Kong regulatory aspects

As a major region for asset tokenization and financial operation in RWA projects, Hong Kong needs to pay close attention to the regulatory laws and regulations regarding financial supervision and their requirements for underlying assets, such as the Securities and Futures Ordinance.

Although Hong Kong has not yet introduced clear regulations for RWA issuance and supervision, understanding the regulatory principles for financial assets in Hong Kong and referring to the issuance rules of similar financial products can increase the project's success rate. Hong Kong adopts a "substantive regulatory principle" that focuses on the substance of the assets rather than their appearance.

mainland regulatory aspects

The regulations on the mainland mainly focus on the legality of underlying assets and the legality of their operational methods. According to the Civil Code and related provisions, objects can be divided into circulating objects, restricted circulating objects, and prohibited circulating objects. RWA applies to circulating objects or restricted circulating objects that are permitted.

In terms of operation, the underlying assets must comply with the laws and regulations of the mainland, stay away from the red line, and obtain the necessary administrative permits.

is not suitable for issuance of assets in Hong Kong.

Although it complies with the principle of dual compliance, certain assets are currently not suitable for issuance in Hong Kong. The Hong Kong RWA project is still in the sandbox testing phase, and assets with "high-tech" or "clean and green" attributes are recommended. In addition, assets that are difficult to generate good cash flow are also not suitable for RWA in the Hong Kong sandbox.

Specific mainland assets that are not suitable for RWA

jewelry and cultural artifacts

At this stage, it is not recommended to use jewelry and cultural artifacts as underlying assets for RWA. The following situations can be directly rejected:

1. Gemstone products with gambling properties
2. Processed jewelry and gemstones
3. National ban on the sale of biological products
4. Low-quality or processed jadeite or imitations
5. Precious metals restricted or prohibited from circulation by the country

intellectual property

Although there are currently no successful cases in the Hong Kong RWA project, the possibility in the future cannot be ruled out. If the intellectual achievements have significant commercial value, they can be attempted once the regulatory standards are clear.

Agriculture and Agricultural Products

If the project meets the standards for scientific and technological ethics review, has high technological content, research value, and good commercial prospects, it can be attempted after the regulatory norms are clarified.

pure conceptual type

Such projects are usually directly vetoed because RWA is different from crowdfunding.

Conclusion

For underlying assets outside of Mainland China and Hong Kong, although there are no clear regulations, considering Hong Kong's position as an international financial center, the location of the assets should not be an obstacle. The key indicators are authenticity, reliability, compliance, and investment value.