SEC Crypto Guidance for token issuers have been released! The US Securities and Exchange Commission (SEC) has published the report, nearly a half a year in the making.
The guidance published by the SEC focuses on tokens and outlines how and when these cryptocurrencies might fall under the securities classification.
Director of Corporation Finance of the SEC William Hinman announced that that regulatory body was developing this guidance for crypto tokens back in November of 2018. Others have confirmed this document such as Valeria Szczepanik, the crypto czar, and Commissioner Hester Peirce.
Hinman described the document as a “plain English” guide that would help issuers easily determine whether or not their cryptocurrency would qualify as a securities offering. The guidance includes examples of both networks and tokens that fall under securities laws, as well as a project which does not.
The framwork itself outlines a number of factors that issuers must take into consideration before determining whether or not their offering qualifies as a security. Some of these factors include expectation of profit, whether a single or central group of entities are responsible for specific tasks, and whether a group is creating or supporting a market for a digital asset.
The guidance also details how issuers should consider tokens previously sold, both in evaluating whether they should or should not have been registered as securities, as well as whether “a digital asset previously sold as a security should be reevaluated.”
The criteria for reevaluating include whether the “distributed ledger network and digital asset are fully developed and operational.” Essentially, whether or not an individual can immediately use the token for a function – does the token focus on a specific use case or does it rely on speculation via “prospects for appreciation”? On that front, does the token actually operate as a store of value?
This guidance has been long awaited by the industry – this also provides legal clarity for token issuers. While this is not a legally binding document, it should be seen more as a guideline.
Questions still remain for the SEC – in particular, the SEC has yet to clarify whether or not the idea of custody for broker-dealers holding cryptocurrencies falls under their purview or not. Most importantly, the key issue around custody stems from the fact that it’s hard to prove that no one else has access to the holdings.
We have lots of questions yet for the SEC. We know promoters are being looked at quite intensely by the SEC. We also know that the SEC is hiring experts. And we also anxiously wait for a Bitcoin ETF. What do you think? Let us know on our Facebook page!