Defining Security Tokens: List of All Countries with Legal Definitions of Digital Securities & Security Tokens | by Security Token Advisors | Security Token Group | Sep, 2020 | Medium
(medium.com)
Security tokens are taking the world by storm and many progressive legislators and regulators have begun defining the lexicon within their jurisdiction’s laws. Over 15 countries have defined the financial instrument with several more on the way.
Most countries already have existing securities frameworks that digital securities fall under, but these often don’t specifically define the concept or create a token framework to place securities under.
We hope that the pioneering countries below set an example for the rest of the world to follow in order to define security tokens globally.
See missing information on this list? Leave a comment below! This list was last updated on September 4th, 2020.
Passed Legislation: In November 2017, the Brazilian securities regulators (CVM) released an FAQ on token sales on their website.STO Framework: The classification of virtual tokens as securities would be supported as part of existing law under Article 2, Subsection IX, of Law N. 6.385/1976. This classifies virtual tokens as securities under a similar test as the Howey Test in the US which also determines what qualifies as a security.Blockchain Views: The CVM has made it possible for ICOs and distributed ledger technology-based tokens to succeed if they can clearly distinguish themselves from being classified as a security.
Passed Legislation: In December 2017, the Blockchain Order was passed to allow for the delivery of securities against payment (settlement) for unlisted financial instruments, paving the way for security token technology.STO Framework: In March 2020, the AMF of France released a legal analysis dedicated to security tokens. In this document, the AMF has acknowledged security tokens as their traditional counterpart and has declared the need for all the right licenses for financial services providers operating in the industry, including the need for on MTF (Multilateral Trading Facility) license for secondary exchanges.Blockchain Views: In April 2019, France passed the PACTE law which was aimed at modernizing the financing process for private companies in France and included allowing ICOs as public offerings as a method of fundraising in France. The AMF has shown concerns for decentralized security token exchanges in their legal analysis.
Passed Legislation: In May 2019, Japan’s National Diet passed a bill to amend the Act on Settlement of Funds and the Financial Instruments and Exchange Act (FIEA).STO Framework: The changes to FIEA defines security tokens as “interests in a collective investment scheme that are represented by tokens” and even clarifies that cryptocurrencies used to participate in a security token offering are considered money and, therefore, an investment. The same principles for traditional securities apply to STOs as well, and issuers are required to comply with disclosure requirements such as filing a securities registration statement and ongoing semiannual securities reports. The detailed items to be disclosed are not yet specified. STOs are also required to file under an exemption in Japan.Blockchain Views: The FIEA does not regulate ICOs other than STOs, i.e., if the token holders do not have the right to receive profit distribution from the issuer, such ICOs are not regulated by the FIEA. Such ICOs may be regulated by the Settlement Act if the tokens fall under the definition of “crypto assets” under the Settlement Act.
Passed Legislation: Legislators passed the Blockchain Act in July 2019, defining security tokens and ICOs into a framework designed to foster innovation in the country.STO Framework: The bill introduces the Token Container Model which is designed to allow for the tokenization of any asset or right. This progressive model provides legal certainty for pre-existing rights that are tokenized as well as for the information stored on blockchain-based systems. Liechtenstein amended its civil law to allow the token world to have priority over the physical world for the cases where tokens exist for rights and assets.Blockchain Views: The legislators took a broad approach and referred to the blockchain as transaction systems based on trusted technologies (VT systems) as a way to describe blockchain systems such as Ethereum but also covers distributed ledger technology and potential other use cases. The Liechtenstein government hopes that this use of more abstract terminology will enable them to future-proof and keep the law valid for the next generations of technology and to allow for the flexible interpretation within a light-touch regulatory framework.
Passed Legislation: In January 2019, the Securities Commission Malaysia (SC) issued an order that sets out the characteristics of “digital currency” and “digital tokens” that are prescribed as being securities for the purposes of Malaysia’s securities law.STO Framework: Following the order, the SC released a consultation paper in March 2019 that outlines the rules for conducting “Digital Token Offerings.” The framework ultimately comes with a lot of compliance requirements, including limits to how much can be raised and quarterly reporting requirements.Blockchain Views: Ultimately, the concept of the ICO has been completely regulated into security tokens and has been strictly enforced. The underlying technology presents an innovation that the SC wants to allow in its borders but will not stand for anything outside of its control.
Passed Legislation: Monaco adopted legislation for security tokens and ICOs in June 2020 and also partnered with tokenization platform Tokeny to power all offerings in the country.STO Framework: The model enables Monaco-based issuers to use security token offerings akin to traditional securities offerings. This means qualified investors only but the possibility for a global audience to reach Monaco-based assets.Blockchain Views: The new framework also offered a model for ICOs for Monaco-based entities. According to the document, “ICOs may be private or public, under the conditions laid down by sovereign ordinance.” The document doesn’t specify between a blockchain or distributed ledger technology, only referring to it as a technology that supports a shared registry.
Passed Legislation: The PSEC initially issued a set of draft rules for regulating ICOs for public review in August 2018. Then the Philippines introduced a new set of rules governing Digital Asset Token Offerings in February 2019, which defined utility and security tokens.STO Framework: The Philippines uses its existing securities test to define security tokens. All security tokens must follow the existing securities framework and requirements.Blockchain Views: Regulators were set to release new ICO guidelines for utility tokens but nothing has been passed, leaving only a path for security token offerings in the country.
Passed Legislation: In July 2020, Russia signed into law a bill called ‘On Digital Financial Assets’ that allows companies can issue digital securities on a blockchain if they are properly registered with the Bank of Russia as issuers and satisfy certain criteria.STO Framework: Digital financial assets, or DFAs, represent digital rights, including monetary claims, the possibility of exercising rights under issuable securities, the right to participate in the capital of a nonpublic joint-stock company, and the right to demand the transfer of issuable securities. However, issuing these security tokens requires strict adherence to securities laws that is not for the light-budgeted.Blockchain Views: Russia is not particularly keen on crypto or ICOs having enacted bans in the past and the Central Bank of Russia being vocally anti-bitcoin. It is expected that new regulations regarding crypto will be enacted later this year as the bill was split into parts between security tokens and other crypto asset types.
Passed Legislation: The Monetary Authority of Singapore (MAS) has set up a sandbox with companies to operate security token exchanges and platforms. After working with the market participants, the MAS released a guidance paper for Digital Token Offerings in May 2020.STO Framework: The guidance paper defines security tokens as traditional securities based on Singapore law, and therefore must follow all similar regulations and requirements to comply. The guidance paper also clarifies the various operator types in the market, such as exchanges and financial advisors, and reinforces the need for the approval by the MAS and the pre-requisite licensing that’s needed to perform such activities. Using multiple example scenarios, the MAS broadly covers all aspects of issuing a security token ensuring explicit clarity for the industry.Blockchain Views: The MAS has also made cryptocurrency exchange operators, as well as ICO advisors, be required to get licensed, creating room for ICOs to operate in Singapore if they aren’t considered securities but strict regulation around the market infrastructure to attempt to curb bad actors. The MAS does not differentiate between public or private blockchains and distributed ledger technology for the purposes of security tokens.
Passed Legislation: In 2018, FINMA released guidelines for ICOs which outlined and confines Security Tokens to the same treatment as their traditional counterpart.STO Framework: Security Token issuers must follow the same financial framework that currently exists in Switzerland. This includes any financial service providers needing to get licensed to conduct their activities.Blockchain Views: ICOs have the ability to establish themselves with a utility purpose but if FINMA determines it has a partial or majority economic interest from holders that it will treat the token as a security.
Passed Legislation: In 2018, the Money Laundering Control Act and the Terrorism Financing Prevention Act were passed to tighten the supervision of financial institutions and cryptocurrency exchanges. In May 2020, The Financial Supervisory Commission (FSC) of Taiwan released STO regulations.STO Framework: The STO framework followed the same approach as the private market in the US, enabling private companies to access capital from professional investors only. The result has had many critiques on the STO model in Taiwan for not including retail investors. Still, Taiwan has ushered in a new form of private capital via security tokens that didn’t previously exist to issuers in the country.Blockchain Views: The country is considered more crypto-friendly than most countries in Asia and doesn’t discriminate against distributed ledger technology or public blockchains but considers most ICOs of tokens as STOs.
Passed Legislation: In February 2018, the Thai Central Bank banned financial institutions from cryptocurrency transactions and two months later the country imposed strict cryptocurrency legislation which included jail time and hefty fines for unregistered token brokers. In September 2019, Thailand’s Securities and Exchange Commission amended its Securities and Exchange Act of 2019 to allow market players to trade digital securities in primary markets.STO Framework: Security tokens in Thailand are limited to institutional issuers and investors but thanks to September’s changes have now ushered in security token exchanges, enabling end-to-end digital securities management on the blockchain. The Stock Exchange of Thailand also plans to support tokenized securities sometime in the future, having already been approved for a license.Blockchain Views: Thailand’s approach to blockchain has been pro-innovation, including on ICOs. In March 2019, the country approved a regulatory ICO portal for all token issuers.
Passed Legislation: In January 2019, The FCA regulators in the UK released a consultation paper on token offerings that defines security tokens and other crypto assets.STO Framework: The FCA distinguishes between three types of tokens; exchange, utility, and security. Security tokens are seen as investment instruments as outlined by the Regulated Activities Order (RAO) and also defined by MiFID.Blockchain Views: The FCA is promoting blockchain and DLT innovation within the region, but limiting what capacity utility tokens can take form by truly needing to differentiate from an investment instrument. The FCA approved the first security token exchange in August 2020.
China, specifically Beijing, has actually made STOs by private issuers illegal. However, the country has numerous blockchain projects in the works, including active trials of the tokenization of government bonds and more! It seems the approach is to have complete control over all security token activity in the country, and it is anticipated the People’s Bank of China may roll out private issuer solutions in the future.
German legislators introduced a draft bill ‘electronic securities’ in August 2020 to allow for the creation of bearer bonds without handheld signatures, enabling securities to go digital, which includes using the blockchain. The bill modernizes the ‘Investment Asset Act’ in Germany that restricted most types of security tokens in the country due to the wet-signature requirement. The lawmakers hope the bill is passed and enacted within the year.
Passed Legislation: The Gibraltar government hasn’t actually passed any specific laws but the nation’s Minister of Digital and Financial Services, Albert Isola, stated in May 2020 that security tokens are legal and welcome in the country. Security tokens are required to follow the same regulations and laws as traditional securities in Gibraltar. All crypto assets and tokens will be seen as security tokens unless otherwise demonstrated to the regulators that it is a utility token.
The UAE SCA has been exploring crypto and security token legislation when it launched a crypto asset consultation paper in October 2019. They have even set up a [email protected] email address for feedback and questions. It is anticipated that the SCA will be releasing final legislation on crypto assets and security tokens in 2020. Security tokens are required to follow the same regulations and laws as traditional securities in Gibraltar.
The USA has not successfully passed any legislation that defines security tokens or any other crypto-asset regulation. The country's various regulations have simply policed their respective jurisdictions within the current confines of the law. However, numerous attempts at bills regarding security tokens and cryptocurrencies have been introduced to Congress but have not passed. This includes The Managed Stablecoins are Securities Act of 2019 HR 5197, the 116th Congress (2019–2020): Token Taxonomy Act of 2019, and over 30 other related bills so far. As the industry continues to grow, it is expected that clarity for defining security tokens and crypto-assets will come from legislators or regulators, especially given the crypto-friendly SEC Commissioner Hester Pierce, who was confirmed for another 5-year term in 2020 and has previously spoken publicly about wanting to introduce a crypto safe harbor framework for conducting ICOs.
The following is a list of countries that support security tokens under the existing securities frameworks, but do not have legislation or regulations specifically defining security tokens. Some countries, such as the United States of America, have burgeoning security token industries despite not having given great legal clarity for security tokens and blockchain-based securities issuances. This list may not be exhaustive:*EU Restrictions
**ICO Regulations Enacted
Most countries already have existing securities frameworks that digital securities fall under, but these often don’t specifically define the concept or create a token framework to place securities under.
We hope that the pioneering countries below set an example for the rest of the world to follow in order to define security tokens globally.
See missing information on this list? Leave a comment below! This list was last updated on September 4th, 2020.
🇧🇷 Brazil
Passed Legislation: In November 2017, the Brazilian securities regulators (CVM) released an FAQ on token sales on their website.STO Framework: The classification of virtual tokens as securities would be supported as part of existing law under Article 2, Subsection IX, of Law N. 6.385/1976. This classifies virtual tokens as securities under a similar test as the Howey Test in the US which also determines what qualifies as a security.Blockchain Views: The CVM has made it possible for ICOs and distributed ledger technology-based tokens to succeed if they can clearly distinguish themselves from being classified as a security.
🇫🇷 France
Passed Legislation: In December 2017, the Blockchain Order was passed to allow for the delivery of securities against payment (settlement) for unlisted financial instruments, paving the way for security token technology.STO Framework: In March 2020, the AMF of France released a legal analysis dedicated to security tokens. In this document, the AMF has acknowledged security tokens as their traditional counterpart and has declared the need for all the right licenses for financial services providers operating in the industry, including the need for on MTF (Multilateral Trading Facility) license for secondary exchanges.Blockchain Views: In April 2019, France passed the PACTE law which was aimed at modernizing the financing process for private companies in France and included allowing ICOs as public offerings as a method of fundraising in France. The AMF has shown concerns for decentralized security token exchanges in their legal analysis.
🇯🇵 Japan
Passed Legislation: In May 2019, Japan’s National Diet passed a bill to amend the Act on Settlement of Funds and the Financial Instruments and Exchange Act (FIEA).STO Framework: The changes to FIEA defines security tokens as “interests in a collective investment scheme that are represented by tokens” and even clarifies that cryptocurrencies used to participate in a security token offering are considered money and, therefore, an investment. The same principles for traditional securities apply to STOs as well, and issuers are required to comply with disclosure requirements such as filing a securities registration statement and ongoing semiannual securities reports. The detailed items to be disclosed are not yet specified. STOs are also required to file under an exemption in Japan.Blockchain Views: The FIEA does not regulate ICOs other than STOs, i.e., if the token holders do not have the right to receive profit distribution from the issuer, such ICOs are not regulated by the FIEA. Such ICOs may be regulated by the Settlement Act if the tokens fall under the definition of “crypto assets” under the Settlement Act.
🇱🇮 Liechtenstein
Passed Legislation: Legislators passed the Blockchain Act in July 2019, defining security tokens and ICOs into a framework designed to foster innovation in the country.STO Framework: The bill introduces the Token Container Model which is designed to allow for the tokenization of any asset or right. This progressive model provides legal certainty for pre-existing rights that are tokenized as well as for the information stored on blockchain-based systems. Liechtenstein amended its civil law to allow the token world to have priority over the physical world for the cases where tokens exist for rights and assets.Blockchain Views: The legislators took a broad approach and referred to the blockchain as transaction systems based on trusted technologies (VT systems) as a way to describe blockchain systems such as Ethereum but also covers distributed ledger technology and potential other use cases. The Liechtenstein government hopes that this use of more abstract terminology will enable them to future-proof and keep the law valid for the next generations of technology and to allow for the flexible interpretation within a light-touch regulatory framework.
🇲🇾 Malaysia
Passed Legislation: In January 2019, the Securities Commission Malaysia (SC) issued an order that sets out the characteristics of “digital currency” and “digital tokens” that are prescribed as being securities for the purposes of Malaysia’s securities law.STO Framework: Following the order, the SC released a consultation paper in March 2019 that outlines the rules for conducting “Digital Token Offerings.” The framework ultimately comes with a lot of compliance requirements, including limits to how much can be raised and quarterly reporting requirements.Blockchain Views: Ultimately, the concept of the ICO has been completely regulated into security tokens and has been strictly enforced. The underlying technology presents an innovation that the SC wants to allow in its borders but will not stand for anything outside of its control.
🇲🇨 Monaco
Passed Legislation: Monaco adopted legislation for security tokens and ICOs in June 2020 and also partnered with tokenization platform Tokeny to power all offerings in the country.STO Framework: The model enables Monaco-based issuers to use security token offerings akin to traditional securities offerings. This means qualified investors only but the possibility for a global audience to reach Monaco-based assets.Blockchain Views: The new framework also offered a model for ICOs for Monaco-based entities. According to the document, “ICOs may be private or public, under the conditions laid down by sovereign ordinance.” The document doesn’t specify between a blockchain or distributed ledger technology, only referring to it as a technology that supports a shared registry.
🇵🇭 Philippines
Passed Legislation: The PSEC initially issued a set of draft rules for regulating ICOs for public review in August 2018. Then the Philippines introduced a new set of rules governing Digital Asset Token Offerings in February 2019, which defined utility and security tokens.STO Framework: The Philippines uses its existing securities test to define security tokens. All security tokens must follow the existing securities framework and requirements.Blockchain Views: Regulators were set to release new ICO guidelines for utility tokens but nothing has been passed, leaving only a path for security token offerings in the country.
🇷🇺 Russia
Passed Legislation: In July 2020, Russia signed into law a bill called ‘On Digital Financial Assets’ that allows companies can issue digital securities on a blockchain if they are properly registered with the Bank of Russia as issuers and satisfy certain criteria.STO Framework: Digital financial assets, or DFAs, represent digital rights, including monetary claims, the possibility of exercising rights under issuable securities, the right to participate in the capital of a nonpublic joint-stock company, and the right to demand the transfer of issuable securities. However, issuing these security tokens requires strict adherence to securities laws that is not for the light-budgeted.Blockchain Views: Russia is not particularly keen on crypto or ICOs having enacted bans in the past and the Central Bank of Russia being vocally anti-bitcoin. It is expected that new regulations regarding crypto will be enacted later this year as the bill was split into parts between security tokens and other crypto asset types.
🇸🇬 Singapore
Passed Legislation: The Monetary Authority of Singapore (MAS) has set up a sandbox with companies to operate security token exchanges and platforms. After working with the market participants, the MAS released a guidance paper for Digital Token Offerings in May 2020.STO Framework: The guidance paper defines security tokens as traditional securities based on Singapore law, and therefore must follow all similar regulations and requirements to comply. The guidance paper also clarifies the various operator types in the market, such as exchanges and financial advisors, and reinforces the need for the approval by the MAS and the pre-requisite licensing that’s needed to perform such activities. Using multiple example scenarios, the MAS broadly covers all aspects of issuing a security token ensuring explicit clarity for the industry.Blockchain Views: The MAS has also made cryptocurrency exchange operators, as well as ICO advisors, be required to get licensed, creating room for ICOs to operate in Singapore if they aren’t considered securities but strict regulation around the market infrastructure to attempt to curb bad actors. The MAS does not differentiate between public or private blockchains and distributed ledger technology for the purposes of security tokens.
🇨🇭 Switzerland
Passed Legislation: In 2018, FINMA released guidelines for ICOs which outlined and confines Security Tokens to the same treatment as their traditional counterpart.STO Framework: Security Token issuers must follow the same financial framework that currently exists in Switzerland. This includes any financial service providers needing to get licensed to conduct their activities.Blockchain Views: ICOs have the ability to establish themselves with a utility purpose but if FINMA determines it has a partial or majority economic interest from holders that it will treat the token as a security.
🇹🇼 Taiwan
Passed Legislation: In 2018, the Money Laundering Control Act and the Terrorism Financing Prevention Act were passed to tighten the supervision of financial institutions and cryptocurrency exchanges. In May 2020, The Financial Supervisory Commission (FSC) of Taiwan released STO regulations.STO Framework: The STO framework followed the same approach as the private market in the US, enabling private companies to access capital from professional investors only. The result has had many critiques on the STO model in Taiwan for not including retail investors. Still, Taiwan has ushered in a new form of private capital via security tokens that didn’t previously exist to issuers in the country.Blockchain Views: The country is considered more crypto-friendly than most countries in Asia and doesn’t discriminate against distributed ledger technology or public blockchains but considers most ICOs of tokens as STOs.
🇹🇭 Thailand
Passed Legislation: In February 2018, the Thai Central Bank banned financial institutions from cryptocurrency transactions and two months later the country imposed strict cryptocurrency legislation which included jail time and hefty fines for unregistered token brokers. In September 2019, Thailand’s Securities and Exchange Commission amended its Securities and Exchange Act of 2019 to allow market players to trade digital securities in primary markets.STO Framework: Security tokens in Thailand are limited to institutional issuers and investors but thanks to September’s changes have now ushered in security token exchanges, enabling end-to-end digital securities management on the blockchain. The Stock Exchange of Thailand also plans to support tokenized securities sometime in the future, having already been approved for a license.Blockchain Views: Thailand’s approach to blockchain has been pro-innovation, including on ICOs. In March 2019, the country approved a regulatory ICO portal for all token issuers.
🇬🇧 UK
Passed Legislation: In January 2019, The FCA regulators in the UK released a consultation paper on token offerings that defines security tokens and other crypto assets.STO Framework: The FCA distinguishes between three types of tokens; exchange, utility, and security. Security tokens are seen as investment instruments as outlined by the Regulated Activities Order (RAO) and also defined by MiFID.Blockchain Views: The FCA is promoting blockchain and DLT innovation within the region, but limiting what capacity utility tokens can take form by truly needing to differentiate from an investment instrument. The FCA approved the first security token exchange in August 2020.
In The Works
🇨🇳 China
China, specifically Beijing, has actually made STOs by private issuers illegal. However, the country has numerous blockchain projects in the works, including active trials of the tokenization of government bonds and more! It seems the approach is to have complete control over all security token activity in the country, and it is anticipated the People’s Bank of China may roll out private issuer solutions in the future.
🇩🇪 Germany
German legislators introduced a draft bill ‘electronic securities’ in August 2020 to allow for the creation of bearer bonds without handheld signatures, enabling securities to go digital, which includes using the blockchain. The bill modernizes the ‘Investment Asset Act’ in Germany that restricted most types of security tokens in the country due to the wet-signature requirement. The lawmakers hope the bill is passed and enacted within the year.
🇬🇮 Gibraltar
Passed Legislation: The Gibraltar government hasn’t actually passed any specific laws but the nation’s Minister of Digital and Financial Services, Albert Isola, stated in May 2020 that security tokens are legal and welcome in the country. Security tokens are required to follow the same regulations and laws as traditional securities in Gibraltar. All crypto assets and tokens will be seen as security tokens unless otherwise demonstrated to the regulators that it is a utility token.
🇦🇪 The United Arab Emirates (UAE)
The UAE SCA has been exploring crypto and security token legislation when it launched a crypto asset consultation paper in October 2019. They have even set up a [email protected] email address for feedback and questions. It is anticipated that the SCA will be releasing final legislation on crypto assets and security tokens in 2020. Security tokens are required to follow the same regulations and laws as traditional securities in Gibraltar.
🇺🇸 The United States of America (USA)
The USA has not successfully passed any legislation that defines security tokens or any other crypto-asset regulation. The country's various regulations have simply policed their respective jurisdictions within the current confines of the law. However, numerous attempts at bills regarding security tokens and cryptocurrencies have been introduced to Congress but have not passed. This includes The Managed Stablecoins are Securities Act of 2019 HR 5197, the 116th Congress (2019–2020): Token Taxonomy Act of 2019, and over 30 other related bills so far. As the industry continues to grow, it is expected that clarity for defining security tokens and crypto-assets will come from legislators or regulators, especially given the crypto-friendly SEC Commissioner Hester Pierce, who was confirmed for another 5-year term in 2020 and has previously spoken publicly about wanting to introduce a crypto safe harbor framework for conducting ICOs.
Countries Where Security Tokens Are Legal But Not Defined by
Legislators/ Regulators
The following is a list of countries that support security tokens under the existing securities frameworks, but do not have legislation or regulations specifically defining security tokens. Some countries, such as the United States of America, have burgeoning security token industries despite not having given great legal clarity for security tokens and blockchain-based securities issuances. This list may not be exhaustive:*EU Restrictions
**ICO Regulations Enacted
- Anguilla
- Austria*
- Bahamas
- Barbados
- Belgium*
- Canada
- Cayman Islands
- Croatia
- Denmark*
- Finland*
- Hungary
- Italy
- India**
- Indonesia**
- Ireland
- Israel
- Kenya
- Malta**
- Mexico
- Norway*
- Netherlands*
- Luxembourg*
- Poland*
- Saudi Arabia
- South Korea**
- Spain*
- Sweden*
- United States of America
- Uzbekistan
- Vietnam
-
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Francisco Gimeno - BC Analyst Security Tokens have evolved from nothing to be considered an important step on the digital evolution of Finances. A new definition of Securities and with it an open door to many other uses for tokenisation in that field and beyond. Interesting to see the map of who is already there and who is behind the times.