The Securities and Futures Commission of Hong Kong(SFC) issued a statement today on the Security Token Offerings (STO) regulations in Hong Kong.
STOs typically involve the us 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.
The regulator emphasized STOs in most cases are subject to the securities laws of token due to its nature. As such the Securities and Futures Commission of Hong Kong stressed that it is a criminal offense for any individual to issue STOs without regulatory approval.
The regulator reminded intermediaries dealing in STOs to observe applicable laws and ensure compliance. In particular they highlighted the following requirements:
(A) Selling restrictions
Where an intermediary markets or distributes Security Tokens, it must be licensed or registered for Type 1 regulated activity (dealing in securities) and the Security Tokens should only be offered to professional investors.
(B) Due diligence
Intermediaries distributing Security Tokens should conduct proper due diligence in order to develop an in-depth understanding of the STOs.
Intermediaries should also ensure that all information given to their clients is accurate and not misleading.
(C) Information for clients
To help clients make informed investment decisions, intermediaries should provide the information in relation to STOs in a clear and easily comprehensible manner. Intermediaries should also provide prominent warning statements covering risks associated with virtual assets.
Intermediaries are reminded to implement adequate systems and controls to ensure compliance with the requirements before they engage in the distribution of STOs. Failure to do so may affect their fitness and properness to remain licensed or registered and may result in disciplinary action by the SFC.
They also urged the public to be wary of potential risks involved with STOs. As STOs are a nascent form of fundraising and the market is still evolving, investors should be cautious when deciding whether to invest. Investors may be exposed to significant financial losses in trading Security Tokens. If investors cannot fully understand the risks and bear the potential losses, they should not make an investment.
