Your Resourse For Learning About The Security Token Offering Industry

Connect With Us

2020 Look Back Series: STO Laws, Regulations and Jurisdictions

Observing the recent trends and progression in the crypto and blockchain world, we see a trend of investments being made in startups and in companies that are in their initial days. Investors in the crypto space find it lucrative to invest in projects for whom they see a promising future.

To develop a mechanism to facilitate investors and startups, ICOs were introduced. ICOs were a suitable solution for investors to purchase tokens and support a project.

This ICO mechanism had its flaws that were exploited soon, and it was realized that it was no longer feasible to implement ICOs. To avoid scams and frauds, an adequately regulated mechanism was needed. This is how STOs came into existence. A regulated and highly secure process to raise funds.

Security Token Offering (STOs) is still in its early years. They come under different regulations and jurisdictions. This brief writing is part two of our 2020 Look Back series, where we are highlighting all the important events, news, and stuff that took place around the concept of tokenization and expansion of STOs last year.  We will look back at recent progress regarding laws or regulations and essential changes made in the previous year in different countries, and especially in the US!

What Regulations are Security Tokens Subjected to?

STO is a new way of fundraising, and since they operate internationally, understanding and structuring its regulations is quite complicated.

In the US, the projects adopting STOs require “double compliance,” i.e., the project and investors need to comply with the laws of both the countries to which the participants belong.

STO regulations in the United States

When it comes to the United States, STOS came under the jurisdiction of the SEC. SEC has introduced different exemptions that investors could use if they are operating in the US.

To organize offers of securities on various conditions SEC has different legal regulations setup for various conditions. These include Reg A (Reg A+), Reg CF, Reg D (506b, 506c), and Reg S.

The recent advancements (SEC) have increased limits dictating how many capital companies can raise before registering. As per the changes, companies can now raise $5 million under Regulation Crowdfunding provisions, which is increased from $1.07 million. The number for Regulation A+ is increased to $75 million and $10 million under Rule 504 of Regulation D.

Figure 1. U.S. Securities and Exchange Commission (SEC) STO Regulations Comparison by stoanalytics
  • These increased caps will likely increase the interest of startup owners while running STO campaigns.
  • Restrictions governing document filing, solicitation practices, and accredited investor investment limits are also relaxed.
  • The changes are aimed towards facilitation and ease of business for small and medium-sized businesses.

A Look Back at last year

Japanese Government Green-lights New Crypto, STO Regulations

Japan was one of the early adopters of cryptocurrencies and blockchain. In recent advancements Japanese government has green-lighted two new legal crypto exchange-specific amendments to existing financial acts, paving the way for STO Industry.

The Financial Services Agency (FSA) of Japan is looking forward to having the legal amendments made that were delayed by the coronavirus outbreak. The highlights of the regulations include the legal definition of ICO and STO, criminalizing scams and fake news with strict punishments, derivatives falling under the FSA’s regulatory remit, tokens being legally called “cryptoassets,” and other such regulations.

Taiwan Publishes New Security Token Regulations

Last year Financial Supervisory Commission of Taiwan also came up with new Security Token Regulations. The regulations were made to cover different financial aspects of fundraising in blockchain technology. On one side, the regulations are introduced for stability. On the other hand, there are certain limitations imposed that are not so welcomed by the investors. The primary focus was on the eligibility criteria to participate in the STO. Several restrictions were also placed on STO platforms. In short, some restrictions are a hindrance towards the participation of every kind of citizen that is not so liked by the crypto community.

Other countries

France

In 2017, to facilitate and regulate STO, a “blockchain order” was passed.  When we look back at recent advancements, in March 2020, a detailed legal analysis was released that was dedicated to security tokens. In the document, AMF has acknowledged security tokens.

Luxembourg

Luxembourg also passed the “Blockchain Bill” last year to create a proper legal framework for the circulation of securities to enhance the legal aspects of STOs.

Nigeria

Following the trends last year, the Nigerian SEC also came forward and declared crypto and visual assets as a security token.

Russia

In July 2020, Russian passed a bill on Digital Financial Assets that allowed the companies to issue securities on the blockchain if they are registered with the Bank of Russia and follow specific criteria.

This part two of the series was aimed at important events and news that made the highlights regarding STO laws and regulations last year.

We will continue this series, and in the next article, we will discuss the growth in adoption of STOs, new partners, and market expansion in the recent past.

Don’t miss out on the ending of this series!