In a recent update Bank of Lithuania has become the first of market regulators to issue guidelines on STOs.

STO’s Need To Comply With EU and National Legislation Regulating Capital-Raising Activities.

The new guidelines are focussed on the classification of security tokens, assessing specific cases and providing recommendations related to the issue of the security tokens and also clarify on applicable legal regulation. Furthermore, enterprises planning to use the STO method will need to comply with EU and national legislation regulating capital-raising activities.

“The current focus on security token offerings (STOs) is taking over the waning interest in initial coin offerings (ICOs). Businesses are interested in this particular way of raising capital as an alternative to bank lending. The Guidelines on Security Token Offering are aimed at explaining our position in this regard rather than creating new regulatory arrangements. In a strict regulatory environment, such as the securities market, it becomes crucial to set rules in order to avoid any miscommunication, misunderstandings, and consequences.

said Marius Jurgilas, Member of the Board of the Bank of Lithuania.

Furthermore, in case if the market participants are not sure if the tokens are subjected to regulation, the bank will provide consultation for the same. The bank when making the guidelines initiated two public consultations with market participants and also incorporated some suggestions made by them.

The bank will be adopting a technology-neutral regulatory approach, which means that in case if a certain product has features of a financial instrument, it will be subjected to relevant regulation and supervision regardless of the technology used in its creation. Also, the bank will be considering each case individually, while taking into the account of the substance over the form.

STOs Still A Minority

As manifested by Josh Stein, the CEO of Harbor, a security token represents a real tangible right to ownership in a company. He admits that they contain the same investor agreement on paper that you get when participating as a backer of a startup. The advantage is that by making your participation on blockchain it can be issued and traded on a large scale faster, cheaper, and easier.

Still, amongst the new blockchain startups conducting fundraising only a minority are STOs. This leads to another area of strength where security tokens outmatch utility tokens – legal compliance. Security tokens are compliant with federal securities laws, while ICO issuers are selling basically unregistered securities. People who purchased ICO tokens can only use them to get access to some future products. And investors of security tokens have more tangible economic rights to the underlying asset – equity, or a portion of future revenues or profits.

How will these new guidelines the popularity of security tokens? Let us know what you think in the comments below!

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