The financial industry is undergoing a transformative shift driven by emerging technologies, particularly in the realm of capital markets. Today, businesses are embracing digital solutions like Securities Token Offering (STO) to raise funds efficiently and securely. Labuan Financial Services Authority (Labuan FSA) recognises the potential of Distributed Ledger Technology (DLT) in revolutionizing the financial sector and actively supports Fintech-related ventures within Labuan International Business and Financial Centre (Labuan IBFC).

Under the comprehensive Guidelines on Labuan Securities Token Offering (Guidelines), Labuan FSA sets forth a framework to regulate the issuance and offering of securities tokens, ushering in a new era of digital finance. STO operates similarly to traditional securities offerings, with the key difference being that tokens are issued, listed, and traded on digital platforms, representing investor rights through digital smart contracts.

Whether it's conventional or Shariah-compliant, or Environmental, Social, and Governance (ESG) focused, STO presents a dynamic platform for businesses to leverage digital innovations, expanding market access and fostering financial inclusivity.

The issuance or offering of securities tokens falls under the same regulatory framework as securities under the Labuan Financial Services and Securities Act 2010 (LFSSA) and the Labuan Islamic Financial Services and Securities Act 2010 (LIFSSA). At FA Advisory, we provide comprehensive support and guidance to navigate this evolving landscape, ensuring your STO venture complies with all regulatory requirements.

What is a Securities Token?

A securities token is a digital representation of "securities" as defined in Section 2 of LFSSA and LIFSSA, recorded on a distributed digital ledger, whether cryptographically-secured or otherwise. It falls under the regulatory purview applicable to securities offerings under LFSSA or LIFSSA.

Securities tokens can encompass various instruments, including shares, debentures, funds, units, interests in partnerships or trusts, and certificates of interest or participation in various investments.

See Also

Labuan Credit Token License for Initial Coin Offering

Classification of Securities Token Offerings

Private Securities Offering

is defined under section 8(5) of LFSSA or section 13(5) of LIFSSA as follows:

  1. an offer or invitation of securities under section 8(5)(a) of LFSSA or section 13(5)(a) of LIFSSA, where -
    • the offer or invitation is addressed to an identifiable category of persons to whom it is directly communicated by the person making the offer or invitation or by his appointed agent; or
    • the members of that category to which the offer or invitation is made are the only persons who may accept the offer or invitation and they are in possession of sufficient information to be able to make a reasonable evaluation of the offer or invitation,
    • and the number of persons to whom the offer or invitation is communicated does not exceed 50.
  2. an offer or invitation of debentures under section 8(5)(b) of LFSSA or section 13(5)(b) of LIFSSA, where -
    • the first-time investment of each of the initial debenture holders is not less than RM250,000 or the equivalent in any other currency and they are in possession of sufficient information to be able to make a reasonable evaluation of the offer or invitation; or
    • the first-time investment of each of the initial debenture holders is less than RM250,000 or the equivalent in any other currency and the number of persons to whom the offer or invitation is communicated does not exceed fifty and they are in possession of sufficient information to be able to make a reasonable evaluation of the offer or invitation.
  3. an offer or invitation of private funds under section 8(5)(c) of LFSSA or section 13(5)(c) of LIFSSA.
  4. an offer or invitation of securities under section 8(5)(d) of LFSSA or section 13(5)(d) of LIFSSA, pursuant to a take-over offer which complies with the relevant law applicable to such offer.
  5. an offer or invitation of securities or such classes or categories of securities as may be specified by the Authority.
Public Securities Offering

Public securities offering is other than private securities offering.

Why Choose Labuan

Strategic location to tap into the Asia Pacific market

Shared time zone with major Asian cities for seamless interaction

Excellent infrastructure and regulations within the Labuan IBFC

OECD whitelist jurisdiction status

Recognised by prominent exchanges for entity listing (such as Hong Kong, Singapore, Malaysia, Australia, and Dubai Exchanges)

100% foreign ownership with a minimum requirement of 1 shareholder and 2 directors

Low corporate tax rate of 3%

Absence of withholding tax, stamp duty, GST, import duty, sales or service tax, capital gains tax, inheritance tax

Void of tax on dividends to shareholders

Void of tax on director fees for foreign directors

Eligibility Criteria for Labuan Securities Token Offering License

1

Any person can make an offer or invitation to subscribe for securities tokens in or from within Labuan IBFC.

2

Any offer or invitation to subscribe to securities tokens with debenture or sukuk features shall comply with the requirements specified under Part II, Division 3 of LFSSA and Part III, Chapter 2 of LIFSSA.

3

Issuer of public STOs in or from within Labuan shall have the following:

  • minimum capital of RM500,000 or equivalent in any foreign currency and must be maintained at all times.
  • the issuers, issuers’ directors, Chief Executive Officer, controller and any person who is primarily responsible for their operations or financial management shall be fit and proper persons.
  • the issuers shall be able to manage risks associated with their business and operation including demonstrating the processes and contingency arrangement in the event the issuers are unable to carry out their operations.
  • the issuers shall have sufficient financial, human and other resources for their operation at all times.
  • the issuers shall have the appropriate security arrangements which include maintaining a secured environment.

Licensing & Operational Requirements of a Labuan Securities Token Offering License

Operational Requirements
Appointment of Intermediaries
Reporting Requirements
Listing and Trading Requirements
Prospectus/Whitepaper Requirements
  • For private STOs that have reached their maturity period, to notify Labuan FSA in writing within one month after its maturity. It shall ensure fair and orderly winding down of the matured securities including having an auditor to ensure that all assets have been properly returned to investors.
  • Maintain adequate and proper accounting and other records in line with the Directive on Accounts and Record-Keeping Requirement for Labuan Entities issued by Labuan FSA that will sufficiently explain its transaction and financial position.
  • Comply with the relevant laws and regulations in the jurisdictions where it intends to operate including obtaining the necessary approval.
  • Comply with any relevant circulars, guidelines, or other policy documents issued by Labuan FSA from time to time.
  • The issuer and intermediaries involved in the STO shall ensure that the offering and operations of the securities token comply with the Anti-Money Laundering and Anti-Terrorism Financing Act 2001 and any relevant guidelines issued relating to AML/CFT.
  • Where a material change occurs affecting the securities token’s project or the issuer, the issuer must, not later than fourteen (14) days after the occurrence of the event, inform the Labuan FSA of such change for purposes of the announcement.
  • The issuer shall establish a cyber-security framework.
  • The following are the type of intermediaries that facilitate issues or offers of security tokens:
    • a person who operates a platform at which securities tokens are traded (trading platform).
    • a person who provides financial advice in respect of any securities tokens.
    • a Labuan trust company or a bank licensee or an Islamic bank licensee.
  • Intermediaries are reminded to implement adequate systems and controls to ensure compliance with the requirements before they engage in the distribution of STOs. Failure to do so may affect their fitness and properness to remain licensed or registered and may result in disciplinary action by Labuan FSA.
  • Private STOs may appoint any competent agent, trustee, custodian, fund manager, fund administrator or other service providers which may not necessarily be licensed or approved by Labuan FSA, but must be registered or licensed by other competent Authority.
  • For public STOs:
    • the agent shall be a bank licensee or a Labuan trust company.
    • the trustee shall be a Labuan trust company. Any other person may be appointed as a trustee together with Labuan trust company subject to prior approval of Labuan FSA.
    • an issuer shall also appoint and have at all times in place the following functionaries: an IT Auditor, a Tokenisation Technology Provider, and a Compliance Officer.
  • An issuer must prepare and cause to be published on the trading platform an annual report and semi-annual report which contain necessary information to enable token holders to evaluate the performance of the issuer.
  • The issuer’s reports must contain information on the performance of the underlying business or project, including:
    • the total amount of securities tokens issued and in circulation.
    • the status of the utilisation of the securities token’s proceeds by the issuer.
    • the status of the project.
    • audited financial statements for the latest financial year.

Securities token may be listed and traded on any approved exchanges that accept securities token. However, it is encouraged that Labuan securities token to be listed and traded on Labuan approved exchanges.

The issuer or exchange provider shall prepare and cause to be published on the exchange platform an annual report and semi-annual report which contain necessary information to enable token holders to evaluate the performance of the issuer which include but not limited to the following:

  • the total amount of securities token issued and in circulation.
  • the status of the utilisation of the securities token’s proceeds by the issuer.
  • the status of the project.
  • audited financial statements for the latest financial year.

A prospectus / whitepaper must contain such information that would enable an investor to make an informed assessment of the securities token before subscribing to the securities token, including:

  • details of the issuer, including the name, registered address and registered number, the issuer’s objectives, the group of undertakings the issuers belong to, and if applicable, the members who directly or indirectly exercise, or could exercise, a role in the issuer’s administration.
  • brief description of the directors, senior management, key personnel and advisers including name, designation, nationality, address, professional qualifications and related experience.
  • the issuer’s principal activities, and any legal proceedings against the issuer that would impact the issuer’s financial position.
  • audited financial statements of issuers that have been established for three or more years, and where audited financial statements are unavailable, certified financial statements or information by the issuer’s senior management.
  • the reason behind the offering.
  • a technical description of the platform and its benefits, etc.

An issuer must ensure that all information submitted or contained in its prospectus is true and accurate and shall not contain any information or statement that is false or misleading or from which there is a material omission.

A statement in the prospectus / whitepaper containing the following:

“Labuan FSA takes no responsibility for the contents of this prospectus / whitepaper, makes no representations as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon any part of the contents of this prospectus / whitepaper.

An investor is advised to clearly understand the risk(s) of the investment, seek professional consultancy, if necessary and request for sufficient information to enable them to make a reasonable evaluation of the investment.”

FA Advisory offers one-stop application solutions for your Labuan Securities Token Offering License, encompassing:
  • Consultation on eligibility and procedural guidance tailored to your profile.
  • Profiling, due diligence and guidance on documentation preparation.
  • Preparation of Business Plan, Financial Forecast and Operation Manuals.
  • Submission and supervision of the application process until approval.
  • Acting as your liaison and contact point with LFSA, arranging for interviews (if any).
  • Tracking the license approval and handling all queries from LFSA.
  • Advisory services on the appropriate company structure post-approval.
  • Assistance in setting up onshore and offshore bank accounts.
  • Assistance in establishing operational and marketing or co-located offices.
  • Staff provision and office space rental.
  • Internal audit and compliance advisory.

About FAA Advisory Limited

Comprising a team of seasoned professionals well-versed in Labuan's business landscape, FAA Advisory Limited extends a comprehensive suite of services covering corporate services, private wealth management, and licensing compliance administration, all tailored to meet the unique needs of our clients.

At FAA Advisory Limited, our expertise lies in delivering Labuan insights that facilitate business expansion, simplifying intricate processes, and offering valuable information to guide you through various facets of your journey.

Choose FAA Advisory as your trusted partner in navigating the dynamic business landscape of Asia. With our commitment, we are your gateway to success in Labuan and beyond.

Email: advisory@finarkasia.com | Phone number: +6010-931 6678