Australian Financial Market Authority on Security Tokens

Australian Financial Market Authority on Security Tokens

October 10, 2018 Off By Maheen Hernandez

The Australian Financial Market Authority published certain guidelines on how the Initial Coin Offerings are viewed from the point of view of the regulators.

The regulatory qualifications clearly differentiate between tokens, security token, investment token, the payment token, currency token, and utility token.

The publication reads thus: “Security tokens confer the right of payment against an issuer, either on a corporate basis like dividends or on a contractual basis like repayment of principal/interest under the loan.”

FMA has taken the regulatory approach by taking to the considerations provided by other regulators in the rest of the world particularly FINMA in Switzerland.

For instance, in New York, Leaseum Partners issue security tokens for real estate assets also known as real estate assets in compliance with the regulatory standards set by the SEC.

Security tokens according to the regulatory authorities are a lot like traditional equities or debts. They further state that it is irrelevant for the payment to be in fiat currency.  The following are the regulations imposed on the security tokens:

The issuers will have to ensure that their security tokens fulfill the requirements according to the Australian Capital markets Act.  If the Act mandates a license to operate the platform, the token issuer should avail the required license.

The service provider should evaluate if their services came under the banking and investment services.  If a banking license is required, then they need to avail the license accordingly.  If the process of taking the securities into custody is involved as a part of the transaction on a commercial basis, then it is important to avail a banking license.

With respect to the Initial Coin Offerings, the FMA confirms its understanding of the concept as:

The transactions being focused on financing projects of companies or individuals by making use of distributed ledger technology. In line with the market practice, the FMA understands that crypto assets like Bitcoin, Ether or tokens issued provide the investor with participation or share in the issuer’s capital, a dividend right to the appropriate company projects.

This understanding is in line with regular market practice. If initial coin offerings should be made in Australia, it is to be assessed on a case to case basis.  Since the initial coin offerings can be issued in several formats, the issuer should check in to the applicable regulatory areas before the launch.

With the aim of creating an effective token ecosystem, Elevated Returns acquired the Seamico Securities, South Asian broker-dealer.

Stephane De Baets, the president of Elevated Returns, remarked, “While undeniably there is a trend where the assets are migrating to the blockchain, and there is a need for the cryptocurrencies to be supported with collateral of some sort.  These are the early days for this asset class, and therefore it is critical for offering sponsors like Elevated Returns to set the necessary components in order to be successful.”

So, for any security token company, it is essential to look into the regulatory norms before the issuance.

Related Post

Share