This week, The Securities and Futures Commission of Hong Kong issued guidelines for the operations of security tokens.

The Securities and Futures Commission of Hong Kong (SFC) used the guidelines to clarify what constitutes a security token. The approach used is largely in tandem with the United States Securities and Exchange Commission’s (SEC) standpoint.

To qualify as a security token, the cryptocurrency must be tied to a tangible underlying asset. Assets specifically mentioned are precious metals like gold and immovable properties like real estate.

Also given the green-light are economic rights, such as revenue or profit share in a company or business. In essence, security tokens are, thus, viewed as securities under the laws of Hong Kong.

Henceforth, not just anyone can introduce a security token offering (STO) in Hong Kong, since it is now a properly-regulated activity. Individuals and companies that intend to offer STOs to residents of Hong Kong will have to obtain the requisite registration and licensing.

Hong Kong STOs: Professional Investors Only

A notable point in the regulations is the requirement that only ‘professional investors’ can invest in STOs. The effect of this new regulation is that individuals with less than $HK 8 million will no longer be able to directly invest in STOs — and this could have a wide range of implications.

First and foremost, organizations and individuals will be largely shielded from scams. Most fraudulent initial coin offerings (ICOs) that hit the market in recent years dealt a blow to individual token buyers. This segment of the market was largely uninformed about common investment practices. As such, it was easy for these investors to fall prey to scams.

Secondly, corporate bodies and organizations that qualify as professional investors are well-positioned to take on any STO issuer with the needed due diligence. As a direct result, poorly-packaged STOs and other phantom schemes will be less likely to succeed in Hong Kong.

Setting a Trend for STOs

It is expected that more regulators will follow the footsteps of the Hong Kong SFC and find a way to protect their respective citizens from fraudulent schemes.

With clear-cut cryptocurrency regulations springing up across the globe, the prospects of cryptocurrency adoption look bright.

What is your take on the new security token offering (STO) guidelines in Hong Kong? Share your views below!