On 24 January 2019, the Monetary Authority of Singapore (MAS) warned a token issuer not to proceed with its security token offering in Singapore until it can fully comply with regulatory requirements under the Securities and Futures Act (SFA).
The issuer had intended to rely on an exemption under the SFA, which allows an issuer to make an offer of securities to accredited investors without registering a prospectus with MAS. The exemption from prospectus registration is however subject to certain conditions, including a requirement not to advertise the offer. The issuer, in this case, failed to comply with the advertising restriction when its legal advisers put out a LinkedIn post accessible to the public calling attention to the offer. As such, the issuer would not be able to rely on the exemption from prospectus registration. Following MAS’ warning, the issuer has suspended its global offering of securities tokens.
To summarise, we see that the unnamed security token issuer had intended to rely on the exemption to prospectus requirement under section 275(1) of the SFA (“Accredited Investor Exemption”), however, failed to comply with the provision of paragraph 1(a) of section 275 prescribing that the offer must not be “accompanied by an advertisement making an offer or calling attention to the offer or intended offer”.
If you are surprised with such a strict approach of MAS, I invite you to draw attention to another document of June 8, 2016, “GUIDELINES ON THE ADVERTISING RESTRICTIONS IN SECTIONS 272A, 272B and 275” that explains in greater detail the accredited investor exemption framework in Singapore, the position of MAS, and provides guidance on the scope of the advertising restrictions in sections.
The said document contains a list of statements, warnings and recommendations as to advertising restrictions, which may be summarised as follows:
- Offer that does not comply with the advertising restriction will not be treated as an exempted offer.
- To observe the advertising restriction, communication may only be made to qualified persons and the content of such communication must be confined to factual information. ‘Factual information’ with respect to an offer or intended offer means descriptions of the securities being offered or of the business and affairs of the person making the offer, the issuer of the securities offered, or where applicable, the underlying entity of the securities offered.
- Communicating only factual information in the form of a letter or an email addressed to qualified persons will not result in a breach of the advertising restriction.
- Offers made through an unrestricted access platform will not comply with the advertising restriction.
- Offers made through a restricted access platform would comply with the advertising restriction provided that only factual information about offers or intended offers is provided to the qualified persons. Notwithstanding the above, a restricted access platform which publishes generic information on any unrestricted section of its website that is also accessible to persons who are not qualified persons would not be in compliance of the advertising restriction if such generic information draws attention to an offer or intended offer. For example, mentioning on the unrestricted section of the platform that there is a food and beverage company offering shares on the platform would result in a breach of the advertising restriction. This is notwithstanding that the factual information about the offer is confined to the restricted section of the platform.
Guidelines also include a few sample cases for a better understanding of MAS’ position in this regard:
“The operator of ABC-Platform, a restricted access platform, mentions on the unrestricted access section of its website that a company is raising $5 million in equity and has raised $3 million so far. No other information about the offer is mentioned in the unrestricted access section. Further details can only be found on the restricted access section of the platform.
The advertising restriction is breached in this case as the information about the company’s offer is also accessible by persons who are not qualified persons”. The same breach takes place when “a platform operator publishes on a social media network, which allows unrestricted access, that there are available offers on its platform including an equity offer by a tech start-up and a 3-year bond offer”.
Finally, the conclusion is that the offering of security tokens in Singapore under “Accredited Investor Exemption” is inconsistent with any advertising, any public references to the offering whatsoever, in particular, made via social media, even if a reference is only made to the ‘factual information’.
Same advertising restrictions are also applicable to small offers upto 5 mil SGD, and private placements when offers are made to no more than 50 persons.