Author: Wang Wei Kexiang; Source: Tianyuan Law Firm

Introduction

Real World Assets, The issuance of 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 company's initial exploration 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 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 the context of blockchain and digital assets, RWA refers to the integration of real-world assets - such as applications Account collection, real estate, commodities, notes, bonds, etc. - mapped or tokenized 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, and Smart contracts improve operational efficiency and transparency, and provide 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 RWA tokens are deemed to be securities, then Its issuance and trading must meet corresponding securities issuance registration, information disclosure, investor suitability management and other requirements. Under the current regulatory framework, unapproved public issuance of securities is suspected of being illegal.

Risk of illegal fund-raising: If RWA issuance does not comply with the provisions of laws and regulations on non-public issuance, it may be deemed as a disguised public issuance, constituting illegal fund-raising.

Foreign exchange management risk: RWAs involved in cross-border issuance may face strict foreign exchange controls, and there are legal obstacles to the cross-border flow of funds.

Anti-Money Laundering (AML) and Know Your Customer (KY)C) Risk: The anonymity of RWA transactions may be used for illegal activities such as money laundering, and the issuer needs to bear corresponding compliance obligations.

Data security and privacy protection risks: RWA issuance and transactions involve a large amount of data and must comply with laws and regulations on data security and personal information protection.

Intellectual property risk: If the underlying assets of RWA involve intellectual property rights, it is necessary to ensure clear ownership to avoid infringement risks.

Compliance challenges faced by companies issuing RWA

Given the strict regulatory attitude towards cryptocurrency and related activities, there is currently a lack of clarity on the direct issuance and trading of RWA in the form of cryptocurrency within the country. legal basis and regulatory guidance. The main compliance challenges faced by enterprises issuing RWA include:

1 Regulatory uncertainty and potential risks: At present, a clear regulatory framework for RWA has not yet been formed, and the relevant trends There is uncertainty. Companies that issue RWA in the absence of clear guidance face higher risks and may be punished for hitting regulatory red lines.

2 Challenges of penetrating supervision: Regulators may conduct "penetrating supervision" on RWA, that is, substance is more important than form, focusing on the nature and nature of the underlying assets. The substance of the transaction, rather than just its tokenized form. This makes it difficult for companies to circumvent regulation through simple technical means.

3 Complexity of cross-border supervision: If you choose to issue overseas, you need to comply with the laws and regulations of the place of issuance. Differences in regulatory requirements in different jurisdictions may lead to Compliance costs increase and operations become more difficult. Issues such as cross-border capital flows and tax treatment also need to be carefully considered.

4 Challenges 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. Technical solutions The selection and implementation require full consideration of legal compliance.

Review of the compliance path for enterprises to issue RWA

Despite facing many challenges, enterprises still need to carefully explore the compliance path for RWA issuance under 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 demonstration:

1 Overseas issuance model: through overseas areas with relatively loose supervision Establishing a subsidiary or special purpose vehicle (SPV) for issuance is currently an option for some companiescareer choice. 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 regulations on foreign investment and foreign exchange management to ensure the compliance of cross-border capital flows. However, overseas issuance does not completely avoid supervision. Regulatory agencies may supervise RWA issuance activities involving domestic assets or targeting domestic investors.

2 Explore non-encrypted digital assets: You can consider issuing digital certificates that do not fall into the category of "virtual currency" defined by laws and regulations, such as those based on consortium chains or Digital Proof of Stake for 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 it does not belong to a cryptocurrency, the issuance and trading of such digital certificates may still be subject to financial supervision, such as may be deemed to be a quasi-financial product issued without approval.

3 Focus on compliance opportunities in specific areas: RWA in certain specific areas, such as supply chain finance, carbon credits, intellectual property, etc., due to its integration with the real economy More closely, and perhaps not involving public trading of cryptocurrencies, there may be a relatively clear path to compliance. Enterprises should pay close attention to regulatory trends in relevant fields.

Key compliance points for enterprises to issue RWA

For enterprises interested in issuing RWA, the following key compliance points are crucial:

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 the place where it is issued, and seek professional legal advice to ensure the establishment of the issuing entity , asset transfer, token issuance and transaction compliance.

Strictly comply with anti-money laundering and anti-terrorist financing regulations: establish a sound AML/KYC system, fully verify the identity of investors, and monitor transaction activities to prevent Money laundering and other illegal activities.

Attach importance to data security and privacy protection: strictly abide by laws and regulations on data security and personal information protection, and take necessary technical and management measures to protect user data security.

Continuous compliance monitoring andRisk management: Pay close attention to changes in external supervision and promptly adjust compliance strategies according to regulatory requirements. 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 an important direction of financial innovation and brings new financing and asset management opportunities to enterprises. However, in the current strict regulatory environment, compliance is the lifeline for enterprises to conduct RWA business. When 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, with the gradual clarification and improvement of supervision, enterprises are expected to better grasp 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.