The Hong Kong Securities and Futures Commission (SFC) offered new guidance for security token offerings (STO) in an official statement published on its website March 28. The statement was issued to clarify legal and regulatory requirements and remind investors about risks associated with cryptocurrency and security token offerings.
The regulatory body said that 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.”
According to the SFC, security tokens are “likely” to be considered securities under Hong Kong law, which makes them subject to securities laws. As such, entities marketing and distributing tokens that are identified as securities must ensure that they comply with securities laws:
Where Security Tokens are "securities", unless an applicable exemption applies, any person who markets and distributes Security Tokens (whether in Hong Kong or targeting Hong Kong investors) is required to be licensed or registered for Type 1 regulated activity (dealing in securities) under the SFO. It is a criminal offence for any person to engage in regulated activities without a licence unless an exemption applies.
In addition, any intermediaries marketing or distributing any STO must do their due diligence to ensure that they have a complete understanding of the offering and verify that investor information is accurate. Information provided to those investors must also meet transparency expectations and include warnings about cryptocurrency investment risks.
The agency urged intermediaries to consult with the SFC prior to taking any action related to securities token offerings.