Building on Bedrock: Audit and Compliance in Hong Kong’s RWA Tokenization Era

Hong Kong is engineering a seismic shift in global finance building on a strategic vision, methodically transforming itself into the world’s premier regulated hub for digital assets through a series of milestone policies including the “Fintech 2025” strategy [1], the Policy Statement on Responsible Application of AI of October 28, 2024 [2], and the pivotal “Policy Statement 2.0 on the Development of Digital Assets” of June 26, 2025 [3].

At the core of this vision is the tokenization of Real-World Assets (RWAs) — a market projected to surge from over $50 billion in 2024 to potentially trillions by 2030. This new frontier is being built on a foundation of rigorous governance in an ecosystem where trust is the most valuable asset, and it is forged not just through technological innovation, but through compliance. For any RWA platform operator, navigating this landscape is a formidable challenge. Success hinges on demonstrating integrity to regulators, investors, and users. Expert guidance is indispensable.

1.Regulatory Foundation

Hong Kong’s policies are both permissive and prescriptive, creating a market where audibility and compliance are core business requirements.

• “LEAP” (Legal and regulatory streamlining) Framework (June 26, 2025): The LEAP framework seeks to create a unified regulatory regime for all digital asset service providers, including exchanges, dealers, and custodians [3]. The Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) work together to regulate, ensuring that RWA tokenization is conducted within a robust, investor-protected ecosystem.

  
  

• Stablecoin Licensing (Effective August 1, 2025): The new licensing regime for fiat-referenced stablecoin issuers[3] establishes a regulated, reliable form of on-chain money, which is the essential settlement layer for a functioning RWA economy, ensuring that the “cash” leg of a transaction is as trustworthy as the asset leg.

• AI Mandate (October 28, 2024): The government’s “dual-track” approach to AI actively promotes its use in finance while mandating the comprehensive management of its risks [2]. This policy transforms AI governance from a best practice into a critical compliance function, creating a non-discretionary need for specialized AI audits to validate fairness, transparency and security.

  
  

2. Major Auditing Components for a Modern RWA Platform

Typically, an RWA platform must undergo a multi-faceted and continuous audit process that goes far beyond a traditional financial statement review. These audits provide assurance over the technology, the assets, the security, and the financial integrity of the entire operation.

a) Smart Contract Audit

This is a highly technical audit focused on the code that governs the tokenized assets.

Purpose: To verify the security, logic, and efficiency of the smart contracts, ensuring they are free from vulnerabilities and behave exactly as intended.

Key Areas of Scrutiny:

• Security Vulnerabilities: Auditors search for common and novel attack vectors, such as re-entrancy, integer overflows, and front-running vulnerabilities.

• Logical Integrity: Ensuring the code accurately reflects the legal terms and conditions of the underlying asset (e.g., interest payments, dividend distribution, ownership rights).

• Gas Optimization: Analyzing the code for efficiency to minimize transaction costs for users on the blockchain.

  
  

b) RWA Valuation and Attestation (Proof of Reserves)

This audit bridges on-chain and off-chain, providing assurance that the digital tokens are genuinely backed by the specified real-world assets.

Purpose: To build investor confidence by independently verifying the existence, ownership, and value of the underlying collateral.

Key Areas of Scrutiny:

• Asset Verification: An independent auditor confirms the legal ownership and existence of the RWA, which may involve physical inspection or reviewing legal title deeds.

• Valuation: The RWA is valued according to established professional standards (e.g., real estate appraisals, financial instrument valuation).

• On-Chain Attestation: Using cryptographic methods like Merkle Tree Proof of Reserves, the auditor can publicly prove that the total value of the off-chain assets matches the value of the tokens issued on-chain, without revealing sensitive individual data. This is a specialized service offered by crypto-native audit firms.

c) Platform Cybersecurity and Infrastructure Audit

Purpose: Assessing the security condition of the entire technology stack to ensure the platform is resilient against cyber threats and protects user data and assets.

Key Areas of Scrutiny:

• Private Key Management: Auditing the policies and technologies for storing and managing private keys, including the use of hot and cold wallets, multi-signature (multi-sig) arrangements, and Hardware Security Modules (HSMs).

• Network Security: Conducting penetration testing and vulnerability assessments of the platform’s servers, APIs, and user interfaces.

• Data Protection: Ensuring compliance with data privacy laws and verifying that sensitive customer information is properly encrypted and safeguarded [4].

• Business Continuity: Reviewing disaster recovery and business continuity plans to ensure operational resilience in the event of a system failure or attack.

d) AI Model Audit

For platforms using AI for functions like credit assessment [2].

Purpose: To validate that AI models are fair, transparent, reliable, and compliant with regulatory principles.

Key Areas of Scrutiny:

• Bias and Fairness: Testing the model and its training data for biases that could lead to discriminatory or unfair outcomes for certain user groups [2].

• Transparency and Explainability: Ensuring that the AI’s decisions can be understood and explained, particularly in high-risk applications like lending.

• Model Performance and “Hallucination” Risk: Continuously monitoring the model’s performance to prevent “model drift” and validating that its outputs are factually correct and not “hallucinated.”

e) Financial and Operational Audit

This involves the traditional audit of the entity operating the RWA platform, adapted for the unique nature of digital assets.

Purpose: To provide assurance over the financial health and internal controls of the company.

Key Areas of Scrutiny:

• Financial Statements: Ensuring financial reports are compliant with GAAP/IFRS standards, which includes the complex accounting treatment of holding and transacting in digital assets.

• Internal Controls: Auditing the internal processes for transaction reconciliation, financial reporting, and operational management.

• Tax Compliance: Verifying adherence Hong Kong’s tax regulations.

3. Compliance Considerations for RWA Platforms

a) Licensing and Regulatory Adherence

Operating an RWA platform in Hong Kong is a regulated activity. Depending on the specific business model, a platform may need to obtain one or more licenses from the SFC and/or the HKMA. This could include licenses for dealing in virtual assets, providing virtual asset custody, or issuing stablecoins [3, 5].

b) Anti-Money Laundering and Counter-Terrorist Financing (AML/CFT)

RWA platforms must implement a robust AML/CFT framework, including comprehensive Know-Your-Customer (KYC) and Customer Due Diligence (CDD) procedures for users. They must also have systems for on-chain transaction monitoring to detect and report suspicious activities. Platforms must employ RegTech, adopt a ‘tiered account’ structure by risk level, linking trading limits to the implemented KYC level [4].

c) Data Privacy and Protection

Platforms must ensure full compliance with Hong Kong’s Personal Data (Privacy) Ordinance (PDPO) while handling user data. This involves balancing the need for AML/CFT traceability with the user’s right to privacy [4]. Legal frameworks must define what data can be collected and how it can be used. Technically, privacy-enhancing technologies like pseudonymous addresses and zero-knowledge proofs can be used to verify transactions without revealing sensitive user identities [4].

d) Legal Certainty of Tokenized Assets

Legal certainty of tokenized assets refers to the necessary undeniable legal right to the underlying real-world asset. This requires relevant legal engineering to “staple” the off-chain legal rights to the on-chain token in a way that is legally robust and enforceable in a court of law [4].

Conclusion and Key Takeaways

The most successful RWA platforms will be those that can prove their integrity, security, and compliance through rigorous, independent audits. The complexities of this new asset class — spanning smart contract code, cybersecurity, asset valuation, AI governance, and multi-layered regulations — demonstrate that for an RWA platform to operate in Hong Kong, it must be constructed from the outset on a transparent, secure and auditable foundation. Consolidation through financial and operational audits and legal and regulatory compliance services allows companies to not only capitalise on the huge opportunity of RWA tokenisation, but also to build on a rock-solid foundation for long-term growth.

Co-authored By Hui Doe Sum Law Firm LLP (Julianne Doe) & ACH Worldwide Ltd ( Dr. Amanda Lim)

References

[1] Hong Kong Monetary Authority. “Fintech 2025.” (June 2021). Source: HK_Fintech_2025_eng.pdf & https://www.hkma.gov.hk/eng/key-functions/international-financial-centre/fintech/

[2] Financial Services and the Treasury Bureau. “Policy Statement on Responsible Application of Artificial Intelligence in the Financial Market.” (October 28, 2024). Source: P2024102800154_475819_1_1730087238713.pdf & https://www.info.gov.hk/gia/general/202410/28/P2024102800154.htm

[3] Financial Services and the Treasury Bureau. “Government’s Policy Statement 2.0 on Development of Digital Assets in Hong Kong.” (June 26, 2025). Source: https://www.info.gov.hk/gia/general/202506/26/P2025062600269.htm

[4] Hong Kong Monetary Authority. “e-HKD: A Policy and Design Perspective.” (April 2022). Source: e-HKD_A_Policy_and_Design_Perspective.pdf

[5] Financial Services and the Treasury Bureau & Hong Kong Monetary Authority. “Consultation Paper on Legislative Proposal to Regulate Over-the-Counter Trading of Virtual Assets.” (February 8, 2024). This document outlines the expanding regulatory perimeter relevant to RWA platforms. Source: https://www.fstb.gov.hk/fsb/en/publication/consult/doc/consult_va_otc_e.pdf