Tokenised Hong Kong fund shares for professional investors in Germany

The OFC’s instrument of incorporation should identify the share class, voting rights, income entitlement and redemption terms. Each token should correspond to a specified registered shareholding. The offering document must explain how those rights arise and what the token records. A contractual claim against a platform would require a different analysis.

Hong Kong’s OFC Rules make shares personal property transferable under the instrument of incorporation. They also state that scheme property belongs exclusively to the company. A shareholder consequently holds fund rights, rather than ownership of each portfolio security. Token documents must preserve that distinction. (Securities and Futures (Open-ended Fund Companies) Rules, Cap. 571AQ, rr. 56 and 58.)

For EU purposes, the selected fund raises capital from investors and invests it under a defined policy for their benefit. It is an alternative investment fund because it does not require UCITS authorisation. Its shares fall within MiFID II’s category of units in collective investment undertakings. That category does not depend on proving that the instrument also satisfies the separate negotiability test for transferable securities. (Directive 2011/61/EU, Art. 4(1)(a); Directive 2014/65/EU, Art. 4(1)(15) and Annex I, Section C(3).)

MiCA excludes crypto-assets that qualify as financial instruments. The manager should therefore document the fund-share classification before selecting service providers. A MiCA white paper or crypto-asset service provider authorisation cannot establish permission to distribute these shares. Transfer restrictions do not, by themselves, move the instrument into MiCA. (Regulation (EU) 2023/1114, Art. 2(4)(a); ESMA, Guidelines on the qualification of crypto-assets as financial instruments, 19 March 2025, paras. 11–12 and 37–43.)

The proposed first investors are regulated financial institutions investing for their own account. The distributor must establish each investor’s relevant Hong Kong professional-investor status and German professional-client status. The tests have separate legal sources. An institution’s acceptance under one does not establish the other. (Securities and Futures Ordinance, Cap. 571, Schedule 1, Part 1, definition of “professional investor”; KAGB §1(19), no. 32; MiFID II, Annex II, Section I.)

The launch excludes retail investors, German semiprofessional investors and clients seeking elective professional treatment. This is a proposed commercial boundary. It keeps the product within the chosen professional-only route and avoids the additional conditions for other categories. A high subscription amount alone does not satisfy every relevant investor test.

The operating route has five responsible actors:

1. The OFC board approves the share rights, offering documents and transfer restrictions, and appoints the necessary operators.
2. The Hong Kong Type 9 manager manages the portfolio, prepares the German marketing application and maintains the required disclosures and reporting.
3. A suitably licensed Hong Kong distributor handles the Hong Kong offer. A German or appropriately passported EU investment firm handles the relevant German placement, advice or execution services.
4. The registrar verifies legal transfers, maintains the shareholder register and reconciles it with token balances.
5. The portfolio custodian and the independently appointed cash-monitoring, safekeeping and oversight providers perform their respective duties under documented mandates.

A provider may occupy more than one role only where its permissions, eligibility and independence allow it. The technology vendor operates within its documented function. It receives no distribution or custody permission from the fund’s appointments.

Germany is selected because §330 KAGB expressly provides a route for professional marketing by a non-EU manager of a non-EU fund. The manager should treat another member state as a separate market-entry decision. The Hong Kong location and German filing create no EU-wide distribution entitlement. (AIFMD, Art. 42; KAGB §330.)

The sponsor must complete the OFC registration and incorporation process, appoint the required officers and operators, and establish its instrument of incorporation. Registration as an OFC does not itself authorise a public offer. The selected private offer relies on the professional-investor exemption from the public-invitation restriction. The intended disposal and the actual distribution arrangements must support that reliance. (SFO, Part IVA and ss. 103(1), 103(3)(k) and 104.)

The board should approve offering terms that restrict subscription and subsequent transfers to the agreed investor classes. The distributor should control access to offer materials and retain eligibility evidence. Those controls support the selected exemption; they should not be presented as a universal rule that every private OFC must be professional-only.

The investment manager must hold the relevant Type 9 licence or registration. The fund must also entrust its scheme property to an eligible custodian. These appointments concern management and custody of the fund’s assets. They do not settle who can sell its shares or hold an investor’s private keys. (SFO, ss. 112Z and 112ZA; SFC, Code on Open-ended Fund Companies, Chapters 6–7.)

Each intermediary must assess its actual activity. Securities dealing, advice and automated trading services can engage Type 1, Type 4 and Type 7 requirements respectively. A Type 9 manager may rely on the relevant incidental exclusion for activities carried out solely for its asset-management business. An independent platform cannot borrow that exclusion. The proposed route appoints a Type 1 distributor and checks any separate advisory or trading function before it starts. (SFO, ss. 95 and 114 and Schedule 5; SFC, Do you need a licence or registration?, “Incidental exemption”.)

The SFC’s tokenised-securities circular treats tokenisation risks as additional risks within the existing securities rules. The SFC expects intermediaries to assess the ownership arrangements, technology, custody and transfer restrictions. An intermediary that issues or is substantially involved in issuing the tokenised security retains responsibility despite outsourcing. The vendor contract should therefore provide access to records, control changes, incident assistance and an exit process. Intermediaries should also notify and discuss their tokenised-securities plans with their SFC case officer in advance. This is an express supervisory expectation. (SFC Circular 23EC52, 2 November 2023, paras. 5–7, 11–20 and 35.)

Professional-only access here follows the selected offering route. The SFC removed the restriction based solely on tokenisation in 2023. Its 20 April 2026 secondary-trading circular concerns tokenised SFC-authorised investment products offered to the public. It does not authorise trading in this private OFC. A sponsor pursuing that public-product route would need a different product and approval analysis. (Circular 23EC52, paras. 26–27; Circular 26EC22, 20 April 2026, paras. 1 and 5–6; Circular 26EC23, 20 April 2026, paras. 1 and 6.)

A bilateral-transfer service also needs a functional review. A system that regularly introduces buyers and sellers or enables binding transactions may fall within Hong Kong’s automated-trading-services rules. Calling it a noticeboard or adding registrar approval does not decide the issue. The launch design therefore provides transfer administration without a matching engine or investor solicitation service. Any additional facility requires a fresh permission decision. (SFO, Schedule 5, definition of “automated trading services”; SFC, Guidelines for the Regulation of Automated Trading Services, paras. 4–9.)

The Hong Kong manager must use Germany’s national route under §330 KAGB. It cannot rely on the AIFMD passport available to qualifying EU managers. The professional-only route requires the applicable annual-report, investor-disclosure and regulatory-reporting obligations, together with other conditions specified in §330. Control-acquisition obligations also apply when their statutory triggers arise. (AIFMD, Arts. 22–24, 26–30 and 42; KAGB §§35, 287–292, 307–308 and 330.)

The manager must appoint one or more entities to perform independently the cash-monitoring, safekeeping and oversight functions identified in AIFMD Article 21(7)–(9). It cannot perform those functions itself. The existing OFC custodian can be considered for a compatible appointment, but its Hong Kong mandate does not automatically cover every German requirement. This route does not import the whole AIFMD depositary regime or its strict liability for loss merely by referring to those functions. (KAGB §330(1), first sentence, no. 1(b).)

The country conditions changed on 16 April 2026. The filing must address supervisory cooperation, EU high-risk-country status, the EU list of non-cooperative tax jurisdictions and the required tax-information-exchange agreement. An old checklist limited to the FATF position is insufficient. The manager must document the applicable Germany–Hong Kong tax-exchange instrument and the relevant supervisory arrangements, then recheck the country conditions before launch. (Directive (EU) 2024/927, Arts. 1(18) and 3(1); KAGB §330(1), first sentence, no. 3(a)–(c).)

The filing should include the prescribed notification information, the fund and manager documents, disclosures, independent-function appointments and arrangements preventing retail marketing. The manager must use the current statutory filing requirements. The disclosure package should explain investment policy, fees, valuation, custody, liquidity and redemption restrictions, including the consequences of token-system failure. Professional status does not remove these requirements. (KAGB §§307–308 and 330(2); Commission Implementing Regulation (EU) 2024/913, Annex I.)

For the selected non-feeder professional route, the statutory review period is two months after a complete filing. Marketing may begin only from the corresponding BaFin communication. An incomplete submission or the passage of two months supplies no permission by itself. (KAGB §330(4), second sentence, no. 1(a), and §316(3).)

The manager should keep German subscription solicitation closed until that communication and the remaining launch conditions are satisfied. A portal aimed at German investors can constitute marketing even when subscriptions settle elsewhere. BaFin’s guidance calls for effective restrictions on online access and distribution, rather than a professional-investor legend alone. (KAGB §§293(1) and 295(1); BaFin, FAQ on marketing and acquisition of investment funds, questions 1.7 and 1.9.)

If the sponsor wants to test demand earlier, it must establish the applicable pre-marketing route before contact. Section 306b KAGB extends relevant requirements to foreign managers, including notification and the restrictions on subscription materials. Subscriptions within the statutory 18-month period can be attributed to pre-marketing. A reverse-solicitation declaration cannot alter who initiated the actual offer. The proposed launch avoids pre-marketing until that separate process has been approved internally. (KAGB §§293(1) and 306b.)

The German distributor must also hold the permissions for its actual investment services. The engagement should identify whether it places shares, transmits orders, executes transactions or gives advice. Professional-client treatment changes some conduct requirements; it does not remove the licensing perimeter. Buying through a professional asset manager must not become a route for marketing the fund to retail clients. (MiFID II, Arts. 5 and 24–25; Wertpapierinstitutsgesetz, §§2 and 15; BaFin FAQ, question 1.9.)

Marketing reporting must follow the applicable commencement rules. AIFMD II’s revised supervisory-reporting provisions have a later application date of 16 April 2027. The manager should maintain the current reporting process and schedule the transition separately. (Directive (EU) 2024/927, Art. 3(1); KAGB §366(2).)

The legal transfer process starts with the OFC’s governing documents and statutory register. The OFC Rules require a proper instrument of transfer before registration, subject to the exception for transmission by operation of law. They regulate registration and refusal, require a shareholder register kept in Hong Kong and permit court rectification. That register must contain the prescribed holder particulars; a list of wallet addresses is insufficient. The register is evidence of the recorded matters, not an irrebuttable answer to a forged or mistaken entry. (OFC Rules, rr. 60–62, 67–68 and 71–72.)

The board and registrar should adopt the following transfer specification in the constitution, offering terms, transfer procedures and technology mandate:

• Identify the registered holder, beneficial owner where relevant and authorised wallet controller. Check the Hong Kong and German eligibility grounds separately, alongside applicable customer-due-diligence and sanctions checks.
• Permit transfers only between approved addresses. Recheck identity, eligibility and restrictions before approving the transfer, including a change of wallet controller or beneficial ownership without an address change.
• Require the legal transfer instrument and registrar acceptance. Verify applicable stamping or exemption before registration. State when the shareholder change takes effect and how a token transaction remains pending until that step is complete.
• Reconcile issued shares, the legal register and token balances after each issue, transfer and redemption. Block further settlement when the records disagree and investigate the exception.
• Authorise narrowly defined freezes and corrections. Establish evidence, approval and notification procedures for lost keys, fraud, court orders and replacement tokens. Prevent duplicate claims when tokens are cancelled or reissued.
• Apply voting, distribution and redemption rights from the correct share class and record date. Document NAV cut-offs, gates and payment timing. Round-the-clock token movement must not imply continuous redemption or guaranteed liquidity.

These are proposed operating controls. The statutory register and transfer rules, applicable anti-money-laundering duties and SFC expectations supply their legal context; the detailed workflow must be adopted in the documents and system. Professional-investor status does not dispense with customer due diligence. Beneficial-owner identification is distinct from classifying the legally relevant investor. (OFC Rules, rr. 60–72; Anti-Money Laundering and Counter-Terrorist Financing Ordinance, Cap. 615, Schedule 2, ss. 2–5; Circular 23EC52, paras. 13–20.)

The stamping decision must distinguish subscription or redemption from a sale between investors. The OFC treatment and specific exemptions do not make every secondary transfer exempt. The registrar should retain the transaction-specific stamping or exemption evidence. (Stamp Duty Ordinance, Cap. 117, ss. 19(1A), 37B and 47B; Inland Revenue Department, Stamp Office Note U3/SOG/PN07A, November 2023, paras. 4–7.)

The registrar must also check whether a secondary transaction involves offering or placing by the manager or someone acting for it. Such activity can engage the German marketing rules. An investor’s independently initiated resale does not automatically meet that definition, but still requires the relevant buyer eligibility, intermediary and legal-transfer analysis. (KAGB §293(1); AIFMD, Art. 4(1)(x).)

Direct registration should remain a product requirement. A move to omnibus nominees, wrappers, lending pools or unrestricted bridges changes the entitlement or transfer chain and should trigger legal approval before implementation. The distinction between the token record and the legally recognised right is developed in the analysis of token records and legal title. Collateral use would require its own enforceability and custody review, as explained in the separate guide to Singapore tokenised fund units as EU collateral.

The launch documents should distinguish custody of the OFC’s portfolio, control of investors’ token keys and the independent functions required for German marketing. The proposed route gives investors control of their own wallets and leaves the platform without investor keys, cash or nominee title. The portfolio custodian still performs its separate duties under the OFC rules and appointment. (SFO, s. 112ZA; OFC Code, Chapter 7 and Appendix A; KAGB §330(1), first sentence, no. 1(b).)

The licensing review must also assess any vendor or registrar power to move, freeze, cancel or reissue tokens, even where investors retain their keys. If hosted wallets are added, the provider’s precise custody activity requires a new licensing review. German law separately regulates qualified crypto-custody activities involving cryptographic financial instruments and certain private keys. MiCA exclusion does not establish a custody exemption. The contract must identify the licensed entity, permitted activity, segregation, records, subcustody and recovery arrangements. (Kreditwesengesetz, §1(1a), second sentence, no. 6, and §32; Wertpapierinstitutsgesetz, §§2(4) and 15.)

Hong Kong OFC law and the fund documents establish the direct shareholder relationship. The cross-border analysis must then address the relevant proprietary, contractual and insolvency questions separately. German electronic-securities rules do not automatically apply to every foreign tokenised share. Their scope and conflict rules require a distinct classification. (OFC Rules, rr. 56–72; Gesetz über elektronische Wertpapiere, §§1–2 and 32.)

Before accepting any custodian-held structure, counsel should identify the account holder, asset location and registration, custody chain, applicable insolvency regime and claim available after a shortfall. German asset separation under §47 of the Insolvenzordnung depends on an entitlement showing that the asset does not belong to the insolvency estate. A wallet label alone establishes no such conclusion.

Direct share registration reduces dependence on a vendor’s claim to hold the investment for the investor. It does not protect the share’s value against the OFC’s losses. The OFC owns the portfolio; its winding-up treatment follows the applicable Hong Kong provisions. The documents must address the different consequences of fund insolvency, manager failure, key loss and custodian failure. (OFC Rules, rr. 56 and 176–181.)

The board should authorise launch only after the offering basis, operator permissions, BaFin communication, custody appointments and transfer controls are evidenced. The release file should include signed mandates, investor-access rules, a register reconciliation test and a demonstrated lost-key procedure. Any expansion to retail access, hosted custody or organised secondary trading returns to the relevant permission and document stage.

Scope a fund-distribution perimeter memo to review the proposed share rights, investor categories, distributor permissions, German marketing route and transfer and custody documents, and identify the legal work required before launch.