Hong Kong To Start Regulating STOs

Recently, one of the major financial watchdogs of Hong Kong, The Securities and Futures Commission (SFC), laid down some new rules and guidelines meant to govern how security tokens should henceforth be issued and used within its jurisdiction. Their overall approach to the regulation of STOs seems to follow the approach taken by the United States Securities and Exchange Commission’s (SEC) quite closely.

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According to the new guidelines, for a token to be designated a security token, the cryptocurrency in question must be tethered to an underlying asset. The underlying asset must necessarily be a tangible one and could include both immovable assets such as real estate or moveable ones like a precious metal (gold, for example). Besides these, the crypto token may also be tied to tangible economic rights, such as equity stake in a business, a revenue or profit sharing rights in a firm, and so on.

As a result of the newly issued guidelines, anyone and everyone cannot launch an STO or a Security Token Offering within Hong Kong. Since it now comes under robust regulations, interested companies and individuals who wish to offer STOs must first go through the SFC, and acquire the necessary registration and licensing documents.

Moreover, now, STOs will be meant for professional investors only. Only they can now invest in STOs. What does the term “professional investors” mean? It simply means that people having less than $HK 8 Million, will no longer be allowed to invest directly in STOs.

Making the STOs open to only professional investors will help deal with the issue of increasing scams. By limiting who all can participate in this space, the new guidelines ensure that investors take informed decisions about what they are putting on. Naturally, this will help curb the influence of fraudulent ICOs or initial coin offerings. In addition, correct due diligence procedures will be ensured, and the investment environment in Hong Kong will be made safer.