Hong Kong’s financial regulator, the Securities and Futures Commission, put out a statement about the legal and regulatory requirements applicable to parties engaging in security token offerings (STOs), and warned investors to be wary of the risks associated with virtual assets, including tokens that are the subject of STOs (security tokens).
STOs typically refer to specific offerings which are structured to have features of traditional securities offerings and involve security tokens that are digital representations of ownership of assets (eg, gold or real estate) or economic rights (eg, a share of profits or revenue) using blockchain technology. Security tokens are normally offered to professional investors only.
In Hong Kong, security tokens are likely to be “securities” under the Securities and Futures Ordinance (SFO) and so subject to the securities laws of Hong Kong. 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 offense for any person to engage in regulated activities without a license unless an exemption applies.