SFC Introduced STO Regulatory Framework.

Hong Kong Securities and Futures Commission has released a statement regarding Security Token Offerings regulations. Under new regulations, STO will be treated as securities under Type 1 regulated activity. This means that the tokens can be marketed and distributed only by licensed investors who are registered for Type 1 regulated activity.

Below is the original text of SFC 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. This should include, but is not limited to, the background and financial soundness of the management, development team and issuer as well as the existence of and rights attached to the assets which back the Security Tokens. Intermediaries should also scrutinise all materials relevant to the STOs including published information such as the whitepaper and any relevant marketing materials. 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.