In a wake of increasing unregistered issuer and unlicensed distributor of Securities Token Offering (STO), Hong Kong-based Securities and Futures Commission (SFC) warned investors against the risk involved in investing in STO. Moreover, it advised distributors to comply with set rules and procedures before marketing any security token.
Just to remind, Initial Coin Offering or ICO is a concept that deals with utility tokens whereas STO is much similar to IPO (Initial public offering) where the tokens run with ownership of the company. But in case of STO the ownership of tokens counts on top of Blockchain technology. Just like various measures that SFC took to crack down illicit activities related to ICO, they’ve recently issued a fresh warning to warn issuer, distributor, and investors against risky involved in STO.
In a newly issued warning, SFC mentioned that every issuer of STO must be registered and consequently such STO is considered as securities. As suchmust be compliant with the securities law. Addressing that, SFC warned;
“It is a criminal offense for any person to engage in regulated activities without a license unless an exemption applies,”
Moreover, distributors of these securities or STO must contain a license to deal with or registered for Type 1 regulated activity under SFO (Securities and Future Ordinance). These token distributors are advised to look for three areas before dealing with STO, first being imposing selling restrictions, second – proper due diligence and third – providing information to clients. It states that;
“Intermediaries which market and distribute security tokens are required to ensure compliance with all existing legal and regulatory requirements. Further, intermediaries are expected to observe requirements which are similar to those set out in the Circular to intermediaries on the distribution of virtual asset funds dated 1 November 2018.”
In case if any distributor fails to comply with the policies/rules set by SFC will likely lose their license and will result in ‘disciplinary action by the SFC’. These apparent measures are finally to safeguard the interest of investors/interested peers in securities tokens.
Do you suggest an advanced measure that SFC missed to employ to crack down any illicit activity in STO offerings? Let us know in the comment section below