The Bank of Lithuania has set out new guidelines on security token offerings in a bid to provide greater regulatory clarity and aim at higher investor protection.

With this, the bank will become one of the first market regulators in the world to issue guidelines on security token offerings, having already published its position on initial coin offerings.

“The current focus on security token offerings (STOs) is taking over the waning interest in initial coin offerings (ICOs),” said Marius Jurgilas, Member of the Board of the Bank of Lithuania.

“Businesses are interested in this particular way of raising capital as an alternative to bank lending. The Guidelines on Security Token Offering are aimed at explaining our position in this regard rather than creating new regulatory arrangements. 

“In a strict regulatory environment, such as the securities market, it becomes crucial to set rules in order to avoid any miscommunication, misunderstandings and their consequences.”

The guidelines have been developed to provide more focus on their classification, what tokens should be categorised as having features of securities or other financial instruments.

This is in addition to providing the ability to assess specific cases, provide recommendations surrounding security tokens and clarify applicable legal regulation.

In order to use the STO method for issuing tokens qualified as transferable securities, the Bank of Lithuania stated these firms must comply with EU and national legislation regulating capital-raising activities.

Given the unique nature of many of the product offerings, each case will be considered individually, while taking into account the substance over the form.

The bank described its regulatory approach as “technology-neutral”, meaning if a product has features of a financial instrument (e.g. securities), it will apply relevant regulation and supervision regardless of the technology used in its creation.

“In case market participants are not sure whether their offered tokens are subject to regulation, we stand ready to provide them with consultation on this matter,” continued Jurgilas.