China clarifies illegality of RWA tokenization, tightens oversight of overseas activities

For the first time, China has clarified regulatory requirements that real-world asset (RWA) tokenization activities are prohibited onshore, while subjecting related overseas activities by onshore entities to stringent regulatory oversight, according to a notice released on Friday.

The China Securities Regulatory Commission and the People's Bank of China — together with six other central government departments — jointly issued the notice to further prevent and handle risks associated with virtual currencies, updating a 2021 version.

The notice said that conducting RWA tokenization activities onshore — as well as providing related intermediary or information technology services — should be banned.

Such activities, the notice said, may constitute illegal issuance of tokenized securities, unauthorized public offerings of securities, illegal securities and futures operations, or illegal fundraising — all of which fall under illegal financial activities.

An exception applies only to relevant activities carried out with approval in accordance with laws and regulations by the appropriate authorities and conducted on the basis of designated financial infrastructure, the notice said.

The document provides a definition of RWA tokenization, describing it as activities that use cryptographic and distributed ledger or similar technologies to convert asset-related interests, including ownership rights and income rights, into tokens or token-like equity or debt instruments for issuance and trading.

Overseas entities and individuals are prohibited from illegally providing RWA tokenization-related services to onshore entities in any form.

The notice further specifies that onshore entities are barred from conducting RWA tokenization activities overseas without required regulatory procedures.

Where onshore entities directly or indirectly engage in overseas RWA tokenization — either in the form of external debt or through asset-securitization-like and equity-type structures based on onshore asset ownership or income rights — such activities will be subject to strict regulation under the principle of "same business, same risks, and same rules".

Regulatory oversight will be carried out by relevant authorities, including the National Development and Reform Commission, the CSRC and the State Administration of Foreign Exchange, according to their respective mandates. Other forms of overseas RWA tokenization based on onshore asset rights will also fall under coordinated supervision led by the CSRC.

"No entity or individual may carry out the above activities without approval, filing, or other required procedures with the relevant authorities," the notice stressed.

The notice is part of an intensified crackdown on related illegal activities. Financial regulators, industry authorities, and local governments will crack down hard on speculative activities carried out under the guise of RWA tokenization, as well as related illegal financial activities and criminal conduct, to effectively safeguard national security and social stability.

Violations will be punished in accordance with the law, with criminal liability pursued where applicable, according to the notice.