Hong Kong Securities And Futures Commission (SFC) Cautions Against Risky STO Investments
Hong Kong Securities And Futures Commission Warns Against Investing In STOs
The Hong Kong Securities and Futures Commission (SFC) recently warned against investing in digital assets with Securities Token Offerings (STOs) due to the risks involved.
It is important to note that these warnings serve as a reminder about the legal and regulatory requirements apply to parties engaging in STOs. The Hong Kong SFC wishes to inform investors about the risks involved with virtual assets. That's a good deed, for sure.
ICOs (Initial Coin Offerings) differ a little bit from STOs. This is since ICOs involve the sales of tokens of a digital asset to investors to raise money, while STOs is more like IPOs, as it offers ownership to the company in the blockchain.
The Supervision Of STOs
STOs are usually referred to as offerings specified with the characteristics of traditional securities offerings. STOs usually deal with Security Tokens which are often in the form of Gold, real-estates, shares, etc., that utilizes blockchain technology. However, these Security Tokens are usually given to higher investors.
The Hong Kong financial market tags Security Tokens as “securities,” and so the security regulation applies to them.
Subsequently, in situations where Security Tokens are referred to as “securities” any individual that offers Security Tokens in Hong Kong needs to be authorized for Type 1 regulated activity (dealing in securities) under the SFO.
In view of this, SFC states:
“It is a criminal offense for any person to engage in regulated activities without a license unless an exemption applies. 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.”
Intermediaries need to comply with all existing legal and regulatory requirements according to the regulatory body. Additionally, SFC also directed that token distributors should acknowledge these key requirements: imposing selling restrictions, proper due diligence, and provide information to clients – to ensure that tokens are distributed safely.
The regulatory body also added:
“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.”
It is worth a mention that SFC also warned against ICOs towards the end of last year, thus, issuing the risks involved and that investors should stay clear off the loose market.
Also, the U.S wing of SFC is also clearing-out blockchain tokens that fall under the category of Security Token Offering.
The main aim of the SFC is to ensure that investors are safe from the heightened risks of the opaque pricing, hacking, fraud, and volatility of the crypto market. These risks also apply to STOs, due to the fact that STOs are a form of fundraising in which investors need to be careful about. Overall, investors need to know about the high financial losses when trading Security Tokens.
Consequently, SFC seems to be doing the right thing; everyone needs to be aware of the risks involved when investing in anything. And yes, remember one rule, never invest the amount that you can't afford to lose. Never invest your life-saving in any crypto project, be informed, play safely here.