STO (Security Token Offering) Compliance and Regulation in Georgia
A Security Token Offering (STO) represents the digital evolution of traditional securities, where stocks, bonds, or other investment instruments are issued as tokens on a blockchain. Unlike an ICO, an STO falls strictly within the regulatory framework of securities. In Georgia, any public offering involving an investment contract or security requires strict compliance with the "Law on Securities Market" and regulations of the National Bank. STO compliance services are vital for issuers, as errors in this process can lead not only to financial penalties but also to project suspension and reputational damage. This service ensures that your digital securities are legally issued, placed, and admitted for trading.
STO compliance services cover all aspects of securities law, adapted to the digital reality:
- Prospectus Preparation and Approval: Drafting the emission prospectus required for a public offering and submitting it to the National Bank of Georgia for approval.
- Private Placement Exemptions: If the STO is intended only for qualified investors, legally structuring the use of relevant exemptions to avoid full prospectus requirements.
- Accredited Investor Verification: Creating legal mechanisms to ensure that tokens are purchased only by authorized investors.
- Legal Oversight of Token Coding: Ensuring that restrictions required by law (e.g., lock-up periods, transfer restrictions to unauthorized persons) are embedded in the Smart Contract.
- Reporting Obligations: Preparing periodic financial and management reports for the regulator in the post-issuance period.
- Secondary Market Regulations: Admitting tokens for trading on licensed stock exchanges or crypto exchanges that have appropriate authorization.
Complex scenarios are common in the STO process. For example, a company wants to issue tokenized shares and sell them globally. The question arises: how to satisfy Georgian legislation while simultaneously meeting US SEC or EU MiCA requirements if investors are from those regions? In another case, an issuer might mistakenly allow free transferability of tokens on the secondary market during a "lock-up" period, which is a violation of securities law. It is also critical when STO marketing materials contain promises not reflected in the official prospectus, which qualifies as misleading investors.
The cornerstone of STO regulation in Georgia is the Law of Georgia on Securities Market. This law defines what constitutes a security, a public offering, and issuer obligations. Additionally, the Law on Entrepreneurs regulates the corporate side of share issuance. AML legislation is applied for money laundering prevention. It is important to note that the National Bank of Georgia is the main supervisory body, and its normative acts determine detailed issuance rules. Regarding virtual assets, special orders of the National Bank concerning VASP activities apply.
Working with a lawyer begins with strategic planning: determining the type of offering (public or private) and the target market. The next and most labor-intensive stage is preparing the emission prospectus or information memorandum, which requires close collaboration between lawyers, financiers, and auditors. After drafting, the document is submitted to the regulator, followed by communication to address any remarks. Parallel to this, lawyers work with the technical team to ensure the Smart Contract logic fully aligns with the terms outlined in the prospectus. After the issuance is complete, lawyers ensure ongoing reporting compliance.
Legal.ge is a platform gathering corporate law and securities experts with unique experience in blockchain technologies. STO is the intersection of traditional finance and innovation, requiring dual competence. Our specialists will help you navigate the complex regulatory maze and successfully implement a digital securities issuance in Georgia. Find your trusted legal partner on Legal.ge.
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