Author: Wang Wei Kexiang; Source: Tianyuan Law Firm
Introduction
The issuance of Real World Assets (RWA) is becoming a high-profile frontier in the field of financial innovation. Recently, Ant Digital has cooperated with Langxin Group and GCL Energy to complete RWA projects based on new energy and photovoltaic physical assets, marking the initial exploration of domestic enterprises in this field. By digitizing the ownership or income rights of tangible or intangible assets, and presenting and trading them in the form of tokens on the blockchain, RWA is expected to significantly improve the liquidity, accessibility and efficiency of assets. However, for Chinese companies interested in getting involved in the RWA field, compliance is a core element that must be carefully considered, and potential legal risks cannot be ignored.
The definition, advantages and potential risks of RWA
In In the context of blockchain and digital assets, RWA refers to mapping or tokenizing real-world assets - such as accounts receivable, real estate, commodities, bills, bonds, etc. - onto the blockchain . This digitalization process aims to facilitate activities such as trading, staking and financing of these assets on decentralized finance (DeFi) or other digital financial platforms.
RWA issuance has significant advantages: it improves the liquidity of originally less liquid assets, reduces dependence on traditional financial intermediaries, and is expected to reduce financing costs. It also improves operational efficiency and transparency through smart contracts, and provides the possibility for the construction of innovative financial products.
However, along with the opportunities are potential legal risks. The issuance and trading of RWA may involve multiple legal areas, including but not limited to:
Securities law compliance risks: If If RWA tokens are recognized as securities, their issuance and trading must meet the corresponding securities issuance registration, information disclosure, investor suitability management and other requirements. Under China's current regulatory framework, unapproved public issuance of securities is suspected of being illegal.
Illegal fund-raising risk: If RWA issuance does not comply with the provisions of laws and regulations on non-public issuance, it may be deemed to be a disguised public offering issuance constitutes illegal fund-raising.
Foreign exchange management risk: RWAs involved in cross-border issuance may face China's strict foreign exchange controls, and there are laws on cross-border flow of funds. obstacle.
Anti-Money Laundering (AML) and Know Your Customer (KYC) Risks: The anonymity of RWA transactions may be used For illegal activities such as money laundering, the issuer must bear corresponding compliance obligations.
Data security and privacy protection risks: RWA issuance and transactions involve a large amount of data and must comply with China’s regulations on data security and personal information Protective laws and regulations.
Intellectual property risk: If RWA’s underlying assets involve intellectual property rights, it is necessary to ensure clear ownership to avoid infringement risks.
Compliance challenges faced by Chinese companies issuing RWA
In view of China’s strict regulatory attitude towards cryptocurrencies and related activities, RWAs that directly issue and trade cryptocurrencies within the country currently lack clear legal basis and regulatory guidance. The main compliance challenges faced by Chinese companies issuing RWA include:
1Uncertainty and potential risks of regulatory policies: China At present, a clear regulatory framework for RWA has not yet been formed, and there is uncertainty about the direction of relevant policies. Companies that issue RWA in the absence of clear guidance face higher policy risks and may be punished for hitting regulatory red lines.
2Challenges of penetrating supervision: Regulatory agencies may conduct "penetrating supervision" on RWA, that is, substantive emphasis Focus on the form, focusing on the nature of the underlying assets and the essence of the transaction, rather than just the form of tokenization. This makes it difficult for companies to circumvent regulation through simple technical means.
3Complexity of cross-border supervision: If you choose to issue overseas, you need to comply with the laws and regulations of China and the place of issuance. , differences in regulatory requirements across jurisdictions may lead to increased compliance costs and operational difficulties. Issues such as cross-border capital flows and tax treatment also need to be carefully considered.
4Challenges brought by the cross-integration of technology and law: RWA involves emerging technologies such as blockchain, and its legal attributes and applicable rules have yet to be clarified, and the selection and implementation of technical solutions need to fully consider legal compliance.
A review of the compliance path for Chinese companies to issue RWA
Despite facing many challenges, Chinese companies still need to carefully explore compliance paths for RWA issuance within the existing legal framework and fully assess potential legal risks. At present, the following paths are worthy of attention, but they all require in-depth legal analysis and argumentation:
1Overseas issuance model:Passed Setting up subsidiaries or special purpose entities (SPVs) for issuance in overseas regions with relatively loose regulations is currently a choice for some companies. The key to this model is to choose an appropriate overseas jurisdiction and strictly abide by local laws and regulations, including securities laws, anti-money laundering laws, etc. At the same time, it is necessary to pay close attention to China's regulations on foreign investment and foreign exchange management to ensure the compliance of cross-border capital flows. However, overseas issuance does not completely avoid Chinese supervision. Chinese regulatory authorities may supervise RWA issuance activities involving Chinese domestic assets or targeting Chinese domestic investors.
2Exploring digital assets in the form of non-cryptocurrencies: You can consider issuing digital assets that do not fall within the category of "virtual currency" defined by Chinese laws and regulations. Digital certificates, such as digital proof of rights based on consortium chains or private chains. Such digital certificates may be more focused on representing specific contractual rights or rights to income from assets rather than publicly traded cryptocurrencies. However, even if they do not belong to cryptocurrencies, the issuance and trading of such digital certificates may still be subject to Chinese financial supervision, and may, for example, be deemed to be quasi-financial products issued without approval.
3Focus on compliance opportunities in specific areas: RWA in certain specific areas, such as supply chain finance, carbon credits, intellectual property etc., because it is more closely integrated with the real economy and may not involve public transactions of cryptocurrencies, there may be a relatively clear compliance path. Enterprises should pay close attention to regulatory policy trends in relevant fields.
Key compliance points for Chinese companies to issue RWA
For Chinese companies interested in issuing RWAs, the following key compliance points are critical:
Adequate legal due diligence: Before launching an RWA project, a comprehensive and in-depth due diligence investigation must be conducted on the legal ownership and compliance of the underlying assets, and potential legal risks must be fully assessed.
Prudent legal structure design: The issuance structure design of RWA needs to fully consider the laws and regulations of China and the place of issuance, and seek professional Legal opinions to ensure the compliance of the establishment of the issuing entity, transfer of assets, issuance and trading of tokens.
Strictly comply with anti-money laundering and anti-terrorist financing regulations: Establish a sound AML/KYC system to fully verify the identity of investors , and monitor transaction activities to prevent illegal activities such as money laundering.
Attach importance to data security and privacy protection: Strictly abide by China's laws and regulations on data security and personal information protection, and adopt necessary technology and Management measures to protect user data security.
Continuous compliance monitoring and risk management: Pay close attention to changes in domestic and foreign regulatory policies and make timely adjustments to compliance according to regulatory requirements Strategy. Establish a complete risk management system to identify, evaluate and respond to various risks that may arise during the issuance and trading of RWA.
Maintain communication with regulatory agencies: When conditions permit, actively communicate with regulatory agencies to understand regulatory intentions and seek regulatory support. .
Conclusion
The issuance of RWA represents the beginning of financial innovation important direction, bringing new financing and asset management opportunities to Chinese enterprises. However, in China's current strict regulatory environment, compliance is the lifeline for companies to conduct RWA business. When Chinese companies explore RWA issuance, they must adopt a prudent attitude, fully understand and effectively respond to potential legal risks. At present, it is a relatively feasible path to establish overseas entities for overseas issuance, or to explore compliant digital assets in the form of non-encrypted currencies, but both require rigorous legal argumentation and risk assessment. In the future, as regulatory policies are gradually clarified and improved, Chinese companies are expected to better seize the development opportunities brought by RWA under the compliance framework. Enterprises should actively embrace innovation while adhering to the bottom line of compliance to achieve stable and long-term development in the RWA field.
Disclaimer:This article is only a general analysis and discussion and does not constitute any legal advice. Please consult professional legal counsel for specific operations.
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