Have you ever considered the possibility of owning a slice of a luxury asset, like a rare whisky or a precious piece of rare exotic timber, without buying the whole thing?

Real-world asset tokenisation, or RWA tokenisation, is a rising trend where digital tokens are marketed as being backed or linked to physical assets. The investment opportunities, risks, and potential scams associated with it all deserve careful consideration. In particular, many RWA token schemes are not regulated, leaving investors with little or even no protection and at risk of losing all their money if things go wrong.

RWA tokenisation is a blockchain technology that records real-world asset ownership in the form of digital tokens (referred to as tokens). In simple terms, it is like chopping a big asset into many small digital pieces so that more people can own a part of it. Each token records ownership of a physical asset or a pool of assets and can be traded on online platforms.

The concept of tokenisation is not limited to traditional assets like real estate or gold. Beyond stocks and bonds, companies have started creating tokens backed by niche assets like rare rosewood trees, premium tea leaves, fine wines, artworks and antiques.

Such assets typically have low liquidity and high entry barriers, making them difficult for ordinary investors to participate. Whilst RWA tokenisation projects usually claim to provide easier access to these assets by easing such limitations, investors should note that tokenisation does not in itself reduce the underlying risks or offer investor protection.

Whenever a hot new investment idea comes around, scammers are not far behind. RWA tokenisation is no exception. With the rise of RWA token offerings online, investors should be wary of scammers who exploit this novel concept to lure people into buying RWA tokens with false claims of real assets backing them. The tokens you buy could be nothing more than worthless digital entries, not actually backed by anything.

It is often hard for everyday investors to verify if the real-world asset behind a token exists. Scammers usually just stress buzzwords like “high returns”, “asset-backed security” and “low risk” to deceive those who are tempted by the idea of quick profits.

Even if a RWA token is genuinely backed by real assets, investors should never overlook important issues, such as how the assets are valued and held in custody and by whom. In short, claims of real-world backing do not guarantee a token’s safety. Investors still remain exposed to asset-related risks (e.g. valuation, custody, insurance) and the usual risks associated with digital tokens, including technical failures and platform hacking.

In addition, a RWA token offering may constitute a collective investment scheme (CIS) under the Securities and Futures Ordinance if it exhibits elements of CIS, such as pooling funds from different investors or having the scheme operator manage the underlying assets collectively on behalf of investors who do not have day-to-day control over those assets.

Under the current regulatory regime, only CIS authorised by the Securities and Futures Commission (SFC) can be offered to the public in Hong Kong. In general, non-SFC authorised CIS can only be sold to professional investors. However, many RWA token offerings that look like CIS are usually not authorised by the SFC. It is also often difficult to verify whether these schemes are regulated by overseas authorities. In this connection, certain RWA tokens with CIS-like features that came to the SFC's attention have been included on the SFC’s Alert List.

Unauthorised investment arrangements carry higher risks and may not be suitable for general investors. Their offering documents are not authorised by the SFC and the product disclosures may not be clear and comprehensive enough to help investors fully understand the product features and risks. Investors participating in such schemes may not be adequately protected and could have little or no recourse if things go wrong.

Online investment opportunities abound, but so do investment scams. Investors need to stay alert and perform comprehensive research. The SFC website features an “Alert List ” that lists out non-SFC-authorised CIS-like products, as well as those with suspicious traits or offered to Hong Kong investors by unlicensed entities, helping investors exercise caution. Additionally, the Anti-Deception Coordination Centre of the Hong Kong Police maintains a “List of Fake Investment Platforms,” which provides details on fraudulent investment apps and platform websites.

Finally, those who suspect that they have been scammed should seek help promptly from the Police (Anti-Scam Helpline:18222).