Beijing Municipal Bureau of Finance: STOs are Not Legal in China
In a conference held on 1 December, Beijing’s financial director-general stressed that security token offerings are considered unlawful in the country.
ICOs have dissipated recently and STOs are on the rise. During the 2018 Global Wealth Management Forum, Huo Xuewen, the director of the Beijing Finance Bureau, branded STOs, like ICOs, unlawful. He prodded those who are planning to hold an STO in Beijing to not carry it out.
‘With today's platform, I will make a risk warning to those who are propagating in Beijing and want to issue STO. Don't do it in Beijing. If we do it in Beijing, we will be taken away from illegal financial activities.’
China’s Vow to Crush Illegal Fund-Raising
ICOs and cryptocurrencies are deemed illegal in China, and so are STOs. The Vice President of the People’s Bank of China (PBoC), Pan Gosheng, says any form of unauthorized platforms will be ‘crushed’ once it has surfaced.
Last month, 5 November, the PBoC took a stance against token airdrops saying it is an ICO in disguise. A day later, the Central Bank put out a caution to investors on the bubbles that can happen in financing and investing in blockchain-related companies. The word of caution was published as a PBoC working paper: What can Blockchain Do and What can it Not?
China’s aversion towards ICOs and cryptocurrencies began years back and continues until the present time. But spite of the bans and warning by the PBoC, a court in Shenzhen ruled that Bitcoin should be protected as property by the law.
Revision: The Distinction Between STOs and ICOs
A security token offering (STO) is akin to an initial coin offering (ICO). Both are fund-raising efforts taken by businesses. The difference lies in the purpose of the tokens bought and held by the investors.
In an STO, investors get a share of the profit. It acts similar to securities. It safeguards investors better than an ICO.
Tokens from ICO are mostly utility tokens with a promise of access to products and services granted to its holders.
The problem governments face is that both forms of fund-raising are too similar. Back in 2017, some STOs were deliberated as ICOs.
Even though STOs are still not regulated at the moment, startups are choosing this route to raise capital. A number of businesses that plan to do an ICO are now preparing for an STO.