A security token offering, also referred to as an STO, is a type of security represented in the form of a token on the block chain. STOs are marketed by issuers as a tradable form of investments or assets in the issuing company. Accredited investor STO regulations play a central role in this scenario which we will touch on below.
These offerings were developed in response to the high demand for regulations of initial coin offerings (ICOs) with the intent to protect investors from the scams revolving around those offerings. STOs’ popularity has increased significantly over a short period of time, making 2019 a potential banner year for security tokens.
Security Token Offerings Defined
An STO is a type of digital security that holds monetary value. It may be traded and represents an expected future profit or compensation stemming from the STO issuer’s activity.
KYC Process for STOs
Due to the fact that these security tokens are securities, they fall under the same regulations as traditional securities offerings. These regulations are in place to protect investors from the kind of fraudulent activity that occurred with ICOs.
Any public offering of a security token must involve a KYC process as well as verification of accredited investor status for everyone who purchases tokens. This helps ensure that the security tokens are not being accessed with illegitimate funds and that only accredited investors are involved in these offerings.
The majority of issuers only require the token and not asset ownership to be subject to accredited investors. This can vary based on the regulations in place for security token offerings in the issuer’s jurisdiction.
Regulations involving STOs
“Securities” is a definition that varies according to jurisdiction. In the U.S., SEC regulations require any security offering made to domestic residents must have SEC registration or fall under one of the exemptions contained in the 1933 Securities Act. Many issuers opt for a private placement exemption because they tend to be less expensive and save time. Exemptions include Regulations D, S, A+, and CF.
Accredited Investor STO Professionals
It is vital to work in coordination with an accredited investor verification service when dealing with an STO. When selecting a verificationservice for your STO, a company with extensive experience and expertise working with accredited investors and STOs is crucial.
