Let’s discuss the security token offering list of countries and their regulations to launch a security token.

USA

Regulation D

Regulation A+

Regulation S

Regulation D

Regulation D enables a specific offering to avoid being registered by the Security and Exchange Commission (SEC) if the creators fill the “Form D” after the securities are sold.

Issuers need to work with the three rules, Rule 506 (b), Rule 506 (c) and Rule 504. Rule 506(b) and Rule 506(c) do not put a limit for fundraising but allow accredited investors in the US. On the other side, Rule 504 does not have limitations on the status of investors. Rule 506C also says that the investors are accredited and verified and therefore, their information is free from misleading or false statements. Regulation D also allows General Solicitation which enables the companies to promise their projects and fundraising by advertising them.

Regulation A+

It will allow the creator to provide SEC-approved security to non-accredited investors with a general solicitation for maximum $50 million in investment. Regulation A+ is appropriate for established startups as it puts restrictions on providing two years of financial statement. Unlike Regulation D, Reg A+ does not have any limitation on resale, thereby enabling more liquid markets.

The security token issuance of Regulation A+ can comparatively take more time than other options to register the security.

That is the reason why it is expensive than all other regulations.

Regulation S

Regulation S applies when a security offering has to take place in a country apart from the US. Therefore, it is not subjected to any registration requirement under section 5 of the 1993 Act.

However, creators have to follow the security regulations of the country where they are executed.

Exchange Commission implemented Regulation S to shed light on the application of Securities Act registration requirements outside the US and its territories.

Reg S comprises of the following rules:

Rule 901 implies the general statement that the registration requirements only implement to “sales and offers” of securities that occur within the US and its territories

Rule 902 sets definitions for Reg S

Rule 903 offers a safe harbor for transactions that involve the issuance of securities that comply with certain guidelines

Rule 904 provides a safe harbor for offshore resales complying with particular guidelines

Rule 905 says that equity securities of US domestic issuers traded in compliance with the Primary Offer Safe Habor requirements are deemed “restricted securities” as stated in Rule 144 under the Securities Act and subject to holding periods before they can be sold again without limitation in the US.

Though all of the regulations discussed above are valid to launch a security token, it is crucial to consult a legal person before proceeding further.

Europe

1. European Union

To launch Security Token Offering, companies have to create a prospectus and meet local security law requirements, except if qualified for the regulations mentioned below:

The qualified investors’ exemption (private placement)- Just like Regulation D in the US, companies can request qualified investors for the offerings.

The limited network exemption- Companies can trade their security to around 150 people per member state freely.

The limited amount exemption- Just like Regulation A+ mentioned above, organizations can sell securities up to 5 million euros without creating a prospectus.

The large investments exemption- Organizations can trade their securities freely if every investor buys at least 100,000 euro of issued securities.

The nominal value exemption- Organizations can sell the securities without any hassles if each security’s value is equal to at least 100,000 euro.

2. France

Performing a legal activity in France is usually prohibited until the specific person is exempt or licensed. Activities that involve “financial instruments” are regulated activities.

AMF (Financial Markets Authority) had earlier identified the absence of ICO regulations as a risk inherent to ICOs. As a result, the French Treasury has come up with a new legislative framework.

The New Legislative Framework

The proposed legislation would announce a new chapter to BookV, Title V of the French Monetary and Financial Code(CMF) that will be retitled as “Intermediaries in Miscellaneous Property and Token Issuers.”

Chapter 2 of Title V (Token Issuers) specifies the token’s definition that can be registered, issued, transferred or conserved via a shared electronic registration mechanism. Any token issuer needs to comply with the requirements and conditions mentioned in the article L. 550-8, which explains the function of AMF.

The role of AMF within the framework

The AMF requires to offer additional advice related to the law’s provisions in General Regulation (RG AMF). Issuers have the right to submit a disclosure document to the AMF so that buyers can make the right decision while buying tokens.

The AMF then checks the disclosure document and any advertising or promotional content circulated and published by the token issuer. Therefore, the content should be clear, accurate, devoid of false information and should mention the risks that can be faced by investors when buying tokens.

They also verify if the token issuer is a legal individual or organization registered in France and under French law.

3. Switzerland

Though Switzerland is considered a more token-friendly than all other countries, FINMA (Financial Market Supervisory Authority), which regulates the financial markets, has declared that tokens would have to comply with the current Swiss laws.

FINMA examines each token sale on a case-by-case basis and is currently surveying blockchain startups to violate Swiss law potentially.

4. Malta

Malta is an island country based Southern European region that welcomes the blockchain and digital currencies industry with open arms. Understanding the potential of the blockchain, the Prime Minister of Malta, Joseph Muscat said, “I understand that the regulators are wary of this technology but the fact is that it’s coming. We must be on the front line in embracing this crucial innovation, and we cannot just wait for others to take action and copy them. We must be the ones that others copy.”

Malta is in contrast to other nations that have either banned cryptocurrencies or remained uncertain about it. With respect to the sto in Malta, the government has come up with three bills, the Virtual Financial Asset Act, Malta Digital Innovation Authority Act and Innovative Technological Arrangement and Services Act, creating new structures for path-breaking technology called the blockchain.

Just like other countries, the authorities at Malta also ensure to comply with AML and KYC process.

However, unlike other countries, Malta believes in technology first approach. The authorities need to consider the technology behind the project and if it is feasible or not.

Asia

1. Singapore

The Monetary Authority of Singapore (MAS) had come up with a guidance series for token sales. According to the Singapore Government, organizations must register and submit their prospectus to MAS before launching STOs and unless qualified for one of the exemptions mentioned in “A Guide to Digital Token Offerings”, by MAS.

MAS can regulate digital token offers or issuance if the tokens are capital market products under SFA (Securities and Futures Act).

MAS would examine the characteristics and structure of a digital token (including the rights attached to it) to know if it is a capital market product under SFA.

A digital token may constitute a share, a debenture and a unit.

The small offer of an entity in a CIS (Collective Investment Scheme) should not exceed S$5million within any 1 year, subject to certain conditions.

A private placement offer should not be made to more than 50 individuals within a period of any 1 year, subject to specific conditions.

2. South Korea and China

In 2017 beginning, the People’s Bank of China together with other regulators of China announced token sales to be illegal. After one month, the Financial Services Commission in South Korea also declared the same for token sales in South Korea.

3. Hong Kong

Rather than what approached has been followed by its mainland China, Hong Kong declared that they may include the sale and offer of securities. Launching tokens under the category of “securities” and hence, defined as a regulated activity.

Therefore, parties engaged in a regulated activity need to be licensed or registered with the SFC (Securities and Futures Commission) no matter whether the parties are based in Hong Kong or not.

Parties that are involved in the secondary trading of such tokens may also subject to the SFC’s conduct and licensing requirements.

Middle East

1. Israel

The Israel Securities Authority (ISA) established a committee in August 2017 to examine the applicability of existing Israeli securities laws to the sales of tokens. ISA has planned to evaluate the token sales on a case-by-case basis.

ISA stated a security token as a cryptocurrency, entitling the token holder to the future cash flow or ownership rights in a specific venture.

2. United Arab Emirates

The UAE Securities and Commodities Regulator has planned to regulate the Initial Coin Offerings in the country. The planning to introduce regulations was to recognize tokens as securities.

Securities in the Dubai International Financial Centre are governed by the Dubai International Financial Services Authority(DFSA) while the Abu Dhabi Global Market’s Financial Services Regulatory Authority (FSRA) governs securities in Abu Dhabi.

North America

1. Canada

Securities laws in Canada are similar to laws in the USA. Even, the test to determine a security in Canada is identical to the Howey test followed under US law. The token sale which is under Canadian law, then it should be registered and complied with a securities regulatory authority and should have a prospectus.

Though all of the regulations discussed above are valid to launch a security token, it is crucial to consult a legal person before proceeding further.