The security tokens industry is expanding rapidly and several countries are coming from differetn continents are coming forward to take reap the benefits of potential this industry holds. The most recent to join the list is Japan, where a bill to amend the Act on Settlement of Funds and Financial Instruments and Exchange Act (FIEA) has passed both the upper and lower houses of Japan’s National Diet.
What Does the Amendment Brings
The amended FIEA regulates security tokens as “interests in a collective investment scheme that are represented by tokens.” Interests in a collective investment scheme are investors’ rights to receive distribution of profits generated from the common business project undertaken by the promoter or issuer. Such interests are deemed security under the FIEA. In order to conduct a security offering of collective investment scheme interests, the issuers are required to be registered as a Type II financial instruments business operator (FIBO) under the FIEA.
STOs will be subject to disclosure requirements, and the issuers or brokers who wish to deal with these will be subject to registration requirements under the amended FIEA. The amended FIEA quite clearly states that cryptocurrencies will be deemed money for this purpose. Thus, security token offerings, whether contributed in fiat or cryptocurrencies, are subject to regulations under the FIEA as collective investment scheme interests.
Considering the general rule, an issuer is exempt from the basic disclosure requirements when n STO is conducted on a private placement basis. But in this case, security tokens are electronically recorded and can be easily transferred on a blockchain, it is likely that such digital tokens could be widely disseminated into the public. Because of this high liquidity, the amended FIEA distinguishes security tokens from other non-digital collective investment scheme interests and categorizes them as “Paragraph 1 Security” like other liquid securities (e.g., stocks, bonds, or other conventional securities).
For a detailed understanding of the new amendment, visit: National Law Review
Note: “Security token” is not a term used in the amended FIEA. It is used here for ease of reference, meaning digital tokens (an electronic record of value transferrable through electronic information processors) representing collective investment scheme interests (rights of STO investors).