Tokenisation: Asset-backed Tokens and Securities Laws – How to Comply with Australian Financial Regulators
In recent years, the concept of tokenisation has gained significant traction in the financial world, promising to revolutionise the way assets are managed, traded, and financed.
At Allied Legal, our startup lawyers specialise in providing comprehensive guidance on compliance with relevant laws and regulations, including:
- An overview of relevant regulations;
- Classification of asset-backed tokens;
- Requirements for issuing and trading asset-backed tokens.
Contact us today to learn more about how we can help with your startup venture.
What is tokenisation?
Tokenisation involves converting the rights to an asset into a digital token on a blockchain, thereby enabling fractional ownership, increased liquidity, and enhanced transparency.
However, as with any innovation in finance, tokenisation brings with it a set of regulatory challenges, particularly concerning asset-backed tokens and compliance with securities laws in Australia.
Understanding Asset-backed Tokens
Asset-backed tokens represent ownership or rights to an underlying asset, which could range from real estate and commodities to company shares and debt instruments. These tokens are often issued through a process known as a security token offering (STO), where investors purchase tokens backed by the underlying asset.
Regulatory Landscape in Australia
In Australia, the regulation of asset-backed tokens falls primarily under the jurisdiction of the Australian Securities and Investments Commission (ASIC) and the Australian Securities Exchange (ASX). The key piece of legislation governing securities offerings is the Corporations Act 2001 (Corporation Act), which sets out requirements for the offer and sale of securities to the public.
Compliance with Australian Financial Services Law
When issuing asset-backed tokens in Australia, issuers must navigate a complex regulatory framework to ensure compliance with securities laws. These include but are not limited to:
- Classification of Tokens: Determine whether the asset-backed tokens being offered constitute a financial product under Australian law. If the tokens meet the definition of a security, they will be subject to the full suite of regulatory requirements under the Corporations Act.
- Disclosure Requirements: Provide investors with comprehensive disclosure documents, such as a prospectus or product disclosure statement (PDS), containing all material information about the offering. This includes details about the underlying asset, the rights attached to the tokens, and the associated risks.
- Licensing and Registration: Ensure that all parties involved in the token issuance process, including issuers, custodians, and exchanges, hold the necessary licenses or are registered with ASIC. This may involve obtaining an Australian financial services license (AFSL) or operating under an exemption.
- Anti-Money Laundering and Know Your Customer (AML/KYC) requirements: Implement robust AML and KYC procedures to verify the identity of investors and detect and prevent money laundering and terrorism financing activities.
- Market Conduct Rules: Adhere to market conduct rules, such as those relating to market manipulation and insider trading, to maintain the integrity and fairness of the market.
Tokenisation offers tremendous potential to unlock liquidity, streamline asset management, and democratise access to investment opportunities. However, achieving these benefits requires careful consideration of regulatory requirements, particularly concerning asset-backed tokens and compliance with securities laws in Australia.
Contact Allied Legal’s Startup Lawyers today
By addressing these compliance considerations with the guidance of Allied Legal's Startup Lawyers, startups can navigate the complexities of Australian law with confidence, mitigating legal risks and unlocking the full potential of their tokenisation projects.
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