In September, a well-known foreign media outlet released a significant piece of news: China's Securities Regulatory Commission (CSRC) has requested certain Chinese securities firms operating in Hong Kong to suspend their RWA (Real World Asset) business. Subsequently, this news was endorsed by several prominent media outlets in China: the CSRC conveyed the intention to suspend RWA business to at least two Chinese securities firms through window guidance, but no written instructions were issued.

This news undoubtedly poured cold water on the RWA hype that has been gaining momentum since 2025: the suspension of business not only contradicts the vision outlined in Hong Kong's "Digital Asset Declaration 2.0" released this year, but it may also indicate a divergence in the development path and trends of RWA and even the entire crypto asset sector between the financial regulatory authorities in mainland China and Hong Kong.

In the spirit of caution, the Sa Jie team, based on recent information gathering, would like to discuss what the so-called "suspension of RWA business" entails and the potential impacts that may follow.

First, it is important to clarify that, to date, there has been no official confirmation or public acknowledgment from any securities firms regarding the "RWA suspension" incident. Therefore, any rational person should approach this issue with skepticism.

We have summarized the main sources of this information as follows:

Based on the Sa Jie team's recent practical experience, the relevant information may not be baseless. Compared to the open attitude of Hong Kong's financial regulators towards crypto assets and the vision of building a crypto financial center, the regulatory authorities in mainland China are indeed more "cautious" regarding crypto assets (a few years ago, the Sa Jie team might have described it as "negative"). Therefore, in the current context of insufficient practical experience with RWA, inadequate risk identification, and a more emotionally driven market, it is not surprising to hit the brakes.

Additionally, it cannot be entirely blamed on the mainland financial regulatory authorities for the so-called "suspension of RWA." Have the Hong Kong Monetary Authority and the Securities and Futures Commission been fully confident in the bold practice of RWA? If we look beyond the surface, it is clear that Hong Kong's financial regulators, despite the grand rhetoric in the "Digital Asset Declaration" 1.0 and 2.0, harbor a cautious heart. Since certain charging pile projects and photovoltaic projects publicly entered sandbox issuance testing as benchmarks for RWA, nearly a year has passed without any "carp" leaping over this seemingly low "dragon gate." Instead, a large number of private and semi-private RWA projects have emerged in the market under the banners of "asset on-chain" and "overseas issuance."

It can be seen that at least on the point of "RWA should be cautiously increased and tested over the long term," the financial regulators in mainland China and Hong Kong have long reached a consensus. Even if the "suspension of RWA" news is true, it is by no means a whim of the mainland regulatory authorities.

The Sa Jie team has found in practice that there are still many urgent issues to be resolved regarding RWA, and these issues are likely to be significant reasons why regulatory authorities maintain a wait-and-see attitude towards this emerging phenomenon.

(1) Obstacles to Cross-Border Capital

Currently, the vast majority of RWA projects intended for issuance and testing in Hong Kong use underlying assets that are not located in Hong Kong. A considerable portion of these assets is physically situated in mainland China. Moreover, the project companies (limited liability companies or special purpose trusts acting as SPVs) that serve as the "keys" to these assets are also legally registered entities in China.

To comply with regulations for issuing RWA projects in Hong Kong, the mainstream approach is to establish another SPV in Hong Kong or other foreign countries (such as the Cayman Islands or BVI, which are common offshore financial centers) as the actual issuer of the RWA.

This dual-layer structure is actually a very common operation in traditional capital markets, but for a special financial project like RWA that involves crypto assets, there are two legally challenging issues that persist:

(1) How can the issuer legally bring in funds raised from overseas token investors into mainland China?

(2) How can the issuer separate investment returns from the project and legally deliver them to token investors?

The solutions for capital inflow and outflow are crucial. If these cannot be properly resolved, RWA projects cannot become market-oriented, popular, and scalable financial investment products, nor can they be recognized by regulators. The Sa Jie team has discussed the legal compliance, practical feasibility, and implementation costs of two potential paths with several well-known domestic companies while handling RWA business:

The first solution: Using the QFLP channel. In simple terms, this solution allows the overseas RWA issuer SPV to become a compliant overseas investment entity, applying for a QFLP license (Qualified Foreign Limited Partners) from the financial regulatory authority where the underlying assets are located, thereby legally bringing the raised overseas funds back to mainland China.

Compared to the traditional FDI model, QFLP allows overseas funds to invest in domestic private equity funds after currency conversion, and funds can also be used for targeted issuance and other investments. Additionally, according to the "Opinions on Further Optimizing the Foreign Investment Environment and Increasing Efforts to Attract Foreign Investment" (Document No. 11) released by the State Council in 2023, QFLP has advantages in terms of foreign exchange management facilitation, and the overall policy in China supports compliant entities to directly invest in mainland China using RMB raised overseas.

However, this solution faces several practical issues.

First, there is currently no nationwide unified law or guiding document for the QFLP license. It mainly relies on local pilot policies and relevant foreign exchange management and fund regulatory regulations, which means that the issuing entity needs to study and compare the specific policies and requirements of various regions while balancing returns and compliance costs (especially regarding data outflow) to successfully implement the project.

Second, the QFLP license involves foreign exchange control and requires coordination among relevant departments such as the foreign exchange bureau, industrial and commercial regulatory authorities, development and reform commissions, commerce departments, and tax bureaus, with varying entry thresholds and approval efficiencies across regions.

Third, based on the cautious attitude of mainland regulatory authorities towards crypto assets and the objective situation that RWA has not yet been fully rolled out, the uncertainty regarding whether the SPV raising funds through RWA projects can successfully obtain a QFLP license is quite high.

The second solution: Obtaining ODI approval/filing. ODI refers to Overseas Direct Investment approval/filing, which is generally a license that mainland Chinese enterprises need to obtain when they directly or indirectly invest in overseas projects or companies, commonly seen in cases of mainland enterprises setting up factories abroad, mergers and acquisitions, capital increases, and overseas listings. In RWA projects, this means that the rights holders of the underlying assets or project companies (SPVs) in mainland China directly obtain ODI approval/filing and then establish SPVs in Hong Kong or other foreign countries to issue RWA. The advantage of this solution is that it can better address the issue of cross-border capital flow.

However, this solution also has certain limitations. The compliance costs for ODI are extremely high, requiring approval from departments such as commerce, development and reform commissions, and foreign exchange bureaus (banks) to obtain. During the review process, the domestic entity needs to explain the investment purpose, the authenticity and compliance of the specific investment project, and the necessity of the investment, all of which are key points in the ODI review. Given the attitude of Chinese regulatory authorities towards RWA, the success rate of applying for ODI for the purpose of "issuing RWA" may not be high.

(2) Uncertainty in Judicial Protection

Since the projects used for issuing RWA are actually located in mainland China, overseas investors also have concerns regarding judicial remedies for breaches of contract by the project parties.

Currently, in China's judicial practice, there is a general attitude of "legal actions are invalid, risks are borne by the parties" towards transactions and investments involving crypto assets, and the protection of investors' rights is not sufficient. Recently, some overseas investors discussed this issue with the Sa Jie team, but we could not provide a clear answer, as there are currently too few reference samples (strictly speaking, only the charging pile and photovoltaic projects), and the market has not yet developed to the stage of resolving disputes over breaches of contract by project parties.

Therefore, many overseas investors, based on the uncertainty of judicial protection, may hesitate to invest real money, even if the underlying assets are indeed high-quality.

Overall, the Sa Jie team believes that a suspension does not equate to a ban, but rather represents an orderly advancement. Regardless of the truth of the news, the attitudes of mainland China and Hong Kong towards RWA are actually quite consistent: RWA pilot projects must be gradually rolled out only after proper risk identification and effective regulatory testing are in place. Therefore, partners need not be overly pessimistic; orderly advancement is certainly better than a wild growth that gets abruptly cut off.

Related Reading: Venture Capitalists: Stablecoins are just CBDCs wrapped in private issuance.

Original article: “Discussing the Rumored ‘RWA Suspension’ Incident: How True Is It?”

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