For those who follow the cryptocurrency markets, it is a well-known fact that the most populous country in the world, and arguably the most influential superpower in Asia, China, has cracked down on the entire sector. While the country has cracked down tremendously on initial coin offerings (ICOs), and now the securities regulator in Hong Kong—a special administrative region of China—has provided some guidance with respect to security token offerings (STOs).

The agency that has issued the guidelines is the Hong Kong Securities and Futures Commission (SFC), and warns about the risks involved with security token offerings investment. Those issuing STOs have to be licensed or registered in Hong Kong, or receive some kind of exemption. In addition, they can STOs can only be sold to professional investors.

That isn’t all. The SFC also points out that a significant amount of due diligence has to be done before the firms are listed. This includes examining the “background and financial soundness” of the teams involved, as well as the issuer, and scrutinizing all material associated with the offering, including the whitepaper and marketing materials of the STO, as well.

China has been reluctant to embrace the cryptocurrency markets in general, and have characterized the ICO sector as a sector rampant with fraud. However, many have championed security token offerings as a more legitimate investment, considering that security token offerings are actually backed by real assets, such as commodities and/or real estate. The statement still recognizes that there is a massive amount of risk involved with investing in an STO.

The statement referred to STOs as a “nascent form of fundraising” and emphasizes that investors can incur massive losses. In addition, other potential issues are raised, including the fact that cryptocurrency markets might not offer the same kind of liquidity as other more traditional finance markets, and that funds can be hacked, as well.