SFC (Securities and Futures Commission) in Hong Kong has issued an official notification on applicable regulations and laws for STOs (Security Token Offerings). It has also cautioned investors about risks associated with investments in digital assets.
According to the SFC circular released on March 28, 2019, the security tokens will be considered as securities under SFO (Securities and Futures Ordinance). They are subjected to the prevailing securities laws in Hong Kong.
Mandatory registration to offer STOs
The entities planning to offer STOs targeting either the investors in the nation or in Hong Kong need to get registered to deal with securities or obtain a license from the regulator. It is called Type 1 regulated activity. The companies do not to adhere to this rule will face criminal proceedings under the Securities and Futures Ordinance.
The new regulations and rules are also apply to all the intermediaries that deal with STO. The STOs are complex assets and require additional measures to safeguard investors. The intermediaries engaged in the distribution and marketing of STOs need to get appropriate registration and licensing. They are restricted to offer the STOs to professional investors only.
The intermediaries should offer accurate information to potential investors. Therefore, it should conduct due diligence before providing information. They should clearly provide information to the investors explaining risks and warnings associated with digital assets.
SFC issued warnings
The SFC has warned investors in the wake of issue of unregistered security tokens. The investors should be extra cautious before pumping funds in STOs. Hence, the recent advisory from SFC to the distributors is to strictly adhere to the laws and regulations in marketing digital assets.
Initial Coin Offerings (ICOs) are designed with a concept to deal with utility tokens. The ownership of STOs counts on blockchain technology. SFC has issued new guidelines and warnings to those involved in STOs to prevent the risks. It applies to investors, distributors and issuers. This extra caution is on the backdrop of illicit activities associated with the ICOs and the crackdown by SFC. STOs are considered as securities after their registration. Therefore, they fall under the purview of securities law.