SEC broaches subject of crypto regulations
The commission explains how to determine if a token is a security
The Securities and Exchange Commission (SEC) seems, at times, to be dragging its feet on cryptocurrency regulations. However, it has announced a key piece of guidance designed to help clear the air regarding digital tokens and what makes one a security. The statement is a step in the right direction and should prove to be invaluable to crypto projects.
The statement was authored by SEC Director of Division of Corporation Finance Bill Hinman and Senior Advisor for Digital Assets and Innovation Valerie Szczepanik. It starts by asserting, “Blockchain and distributed ledger technology can catalyze a wide range of innovation. We have seen these technologies used to create financial instruments, sometimes in the form of tokens or coins that can provide investment opportunities like those offered through more traditional forms of securities. Depending on the nature of the digital asset, including what rights it purports to convey and how it is offered and sold, it may fall within the definition of a security under the U.S. federal securities laws.”
The SEC’s FinHub is creating the necessary framework to help overcome that confusion. It can analyze the asset and, while it can’t provide total guidance, can “assess whether the federal securities laws apply to the offer, sale, or resale of a particular digital asset.” The framework is a direct transformation of the Howey Test, used to evaluate financial transactions in order to determine if they are investment contracts and, as such, securities.
The two commissioners caution that what has been provided is meant to help, but is not a formal policy. They explain, “This framework represents Staff views and is not a rule, regulation, or statement of the Commission. The Commission has neither approved nor disapproved its content. This framework, like other Staff guidance, is not binding on the Divisions or the Commission. It does not constitute legal advice, for which you should consult with your own attorney. It does not modify or replace any existing applicable laws, regulations, or rules. Market participants are encouraged to review all the materials published on FinHub.”