By
Godfrey Benjamin
May 8th, 2024
Hong Kong’s Securities and Futures Commission (SFC) has published detailed guidelines for security token offerings (STOs).
While the hype of ICOs seems to be in the past, the popularity of STOs is gaining momentum which means that it is already high time for regulators to introduce guidelines that will regulate these fundraising procedures.
Hong Kong’s STO Guidance
For example, the Securities and Futures Commission (SFC), Hong Kong’s securities regulator, has already done it. It has issued official guidance on security token offerings in which three key points for security token issuers and intermediaries are outlined.
The main aim of this guidance is to explain how all parties engaging in STO-related activities should act in order to meet the current legal and regulatory requirements. It is also important to mention that in the published document contains a proposed working definition of a security token and sale.
Hong Kong’s SFC experts explain this notion the following way:
“STOs typically refer to specific offerings which are structured to have features of traditional securities offerings, and involve Security Tokens which are digital representations of ownership of assets (eg, gold or real estate) or economic rights (eg, a share of profits or revenue) utilising blockchain technology.”
If earlier, there were a lot of controversial opinions whether we should consider this or that token as security, now the things with security tokens are much clearer, at least in Hong Kong.
Under Hong Kong’s Securities and Futures Ordinance security tokens should be treated as securities, which means that they are to be regulated under existing securities laws.
It has also been highlighted that any person who introduces on the market security tokens or distributed them should get a license for “Type 1 regulated activity”.
This type of license gives its holder a possibility to legally deal with securities. Obtaining of a license is an obligatory requirement for those who want to hold STOs in Hong Kong or to target Hong Kong investors.
To be involved in securities dealing without having a necessary license is considered to be a criminal offense in Hong Kong.
As for intermediaries who operate STOs or are engaged in their marketing, under the SFC’s requirements, they should comply with the existing Hong-Kong’s Code of Conduct.
Such a requirement is explained by the fact that security tokens are regarded to be complex products which means that additional investor protection measures should be applied.
Moreover, those entities that will operate STOs should follow the existing guidance issued last November to regulate the activities of crypto exchanges and intermediaries engaged in the distribution of digital assets.
Three Key Points
There are three key points in the document. The first one is the requirement to obtain a license and go through a registration procedure with the regulator before holding any STO. There is also a restriction of the range of potential participants of STO sales. Only professional investors are allowed to be engaged.
The second one covers the responsibilities of intermediaries who should meet all the existing requirements and to ensure that all information disclosed to investors is relevant and not misleading.
And the third one requires to provide investors with transparent information and to issue notifications about the risks related to investments in virtual assets.
If you want to get more details on the peculiarities of STOs and to understand better how they work, our guide is exactly for you.
And to find out what STOs are available now, follow this link.