What Makes a Security Token Compliant?
A security token is considered compliant when it adheres to the regulatory framework established by financial authorities in the jurisdictions it operates within. Here are the key factors that contribute to compliance:
- Regulatory Adherence: Security tokens must comply with local securities laws, including registration requirements and disclosure obligations.
- Investor Accreditation: Compliance often necessitates ensuring that only accredited investors partake in the offering, which is crucial for maintaining regulatory standards.
- Smart Contract Audits: The underlying smart contracts of the security token should undergo thorough audits to guarantee security and adherence to regulatory parameters.
- Transparent Reporting: Issuers are required to provide transparent and regular reports to token holders regarding company performance and any material changes.
- Transfer Restrictions: Security tokens may need to implement mechanisms that restrict trades to approved exchanges and limit secondary market transactions to maintain compliance.
By ensuring these factors are met, a security token can maintain its compliance status, providing confidence to investors and fostering a secure trading environment.