The Mauritius Financial Services Commission (FSC) has clarified the rules applying to projects launching security token offerings (STOs).

In guidance published Monday, the FSC said that security tokens are classed as securities as defined in the country’s Securities Act 2005, but in digital form.

Issuers raising funds through STOs are therefore required to get prior approval from the FSC, according to the guidance. However, if the issue is targeting “sophisticated” or “expert” investors and funds, or professional investment schemes, prior approval is not required.

Further, anyone soliciting others to transact in security tokens is also required to gain a license under the Securities Act and “strictly” comply with relevant rules. To not do so would be considered a criminal offence, the document states.

Those rules include conduct appropriate due diligence of the STO project, its team and the “rights and obligations” regarding the assets backing the tokens. STO projects must also make disclosures, informing clients in an “accurate, timely and transparent” manner of the risks involved.

In an additional note, the FSC further cautioned that STOs carry a “high-risk,” and that investors are not protected by any statutory compensation arrangements in the Indian Ocean island nation.

The guidance on STOs is the watchdog’s second in a series of notes for fintech firms. Last September, the watchdog published its first guidance on digital assets, recognizing them as an asset-class for “sophisticated and expert” investors.

Earlier this year, the FSC also issued final rules for digital asset custodians, mandating that they become licensed in order to carry out custody services, among other requirements.

Port Louis, Mauritius image via Shutterstock