During the decline of ICOs, a better way for fundraising was much required by startups and large companies. The Security Token Offerings or STOs filled this gap by providing a more secured transparent infrastructure which is being slowly legalized and adopted by many countries.
Blockchain technology is the core of STOs that makes it more secure and trustable than other ways of fundraising. Some countries already have legal frameworks suitable for STO space while others are still making developments in their process.
5 Countries with Legal Framework for STOs
In the past 3 years, many countries adopted the Security Tokens concept to help startups and businesses raise capital easily. A few of these countries that offered a suitable legal framework are listed below:
The country passed the Blockchain Order in 2017 where the securities delivery against payment was legalized by the government. This legislation facilitated the integration of STOs. The France AMF (Autorité des marchés financiers) also released a specific analysis for Security Tokens back in 2020.
Additionally, AMF accepted the integration of STOs into its current regulatory framework and declared that financial services providers who operate within the industry must secure the appropriate licenses, including an MTF license for secondary exchanges.
France currently has one of the best STOs legal frameworks for those startups and businesses with the right licenses to work in the industry. Otherwise, AMF still has some concerns regarding the legalization of STOs in their country and they are creating a reliable framework to properly regulate it.
Securities and Exchange Commission of Brazil (CVM) published an FAQ regarding the Security Token Sales back in 2017. Brazil had an existing law under Article 2, Subsection IX, of Law N. 6.385/1976, according to which all virtual tokens represented as securities are legal.
They have certain guidelines regarding the classification of securities which is similar to the Howey Test in the US. Also, the CVM defined a fine line between ledger technology-based tokens and ICOs to determine the securities.
Switzerland is a Business haven, especially for finance companies due to its business-friendly laws and jurisdictions. The whole blockchain infrastructure in this country is legalized and controlled by the Swiss Financial Market Supervisory Authority (FINMA) that is responsible for supporting innovation and technology startups.
According to FINMA, the same financial market laws should apply for Security Token Offerings. To ensure the eligibility for securities, the company has to contact the FINMA supervisors to get a definitive reply. The process itself might be costly and time-taking because the FINMA has complex requirements that could prolong the reply time. However, it’s completely worth it to list your projects in a country that has business-friendly laws and safe infrastructure.
#4: United States
The United States first issued their Securities Trading Act in 1934, and they probably have the best regulatory body to create a suitable framework for STOs. The SEC passed many legal acts under the 1934 securities act.
Blockchain startups are allowed to organize security offerings but the SEC has strict rules and guidelines that must be fulfilled to make offerings publicly available. They have a long list of acts and guidelines and a few of them are listed under Reg A (Reg A +), Reg CF, Reg D (506b, 506c), Reg S.
Overall, the US already has a legal framework for STOs, but the process is still not simplified enough. The jurisdictions and laws are actually inclined towards supporting STO blockchain startups but with certain conditions.
The Securities Commission Malaysia (SC) came up with their own version of definition where they described the acceptable characteristics for “digital currency” and “digital tokens”. Both of these terms actually refer to securities.
On Tuesday, January 15th, the Securities Commission (SC) was given its first regulatory powers by the Ministry of Finance to deal with digital asset exchanges and offerings.
In SC’s 2019 public consultation paper, they outlined a finite number of rules for conducting Digital Token Offerings. The only downside is that the Malaysian Securities Commission has set certain limits on the amount that can be raised by startups on a quarterly or yearly basis.
Also, the compliance requirements are a bit confusing for startups that might create some issues. The commission keeps strict surveillance over the securities being traded and the underlying technology that is being used. The commission is not much reliant on giving away control due to innovative technologies.
Other than these countries, many others already have legal frameworks suitable for STOs space. Countries such as Singapore, Taiwan, Thailand and the UK have securities law that can be used as a base to regulate Security Token Offerings.
These security laws make these countries the best hubs for STOs and the best laws and regulations can be expected from them because they already have a framework and regulatory commission working with them. More countries are showing interest in the thriving STO industries and many of them such as Germany and UAE are also trying to develop suitable frameworks for trading securities.
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