SEC Alert - Congress Calls for More Regulatory Certainty on Cryptocurrencies and Initial Coin Offerings


On September 25, 2018, members of the U.S. Congress hosted a roundtable event entitled “Legislating Certainty for Cryptocurrencies,” asking industry experts to share their views on the need for more regulatory certainty on cryptocurrencies and initial coin offerings (ICOs). 

"Your input is critical to helping us preempt a heavy-handed regulatory approach that could stall innovation and kill the U.S. ICO market." - Congressman Warren Davidson

Topics of discussion generally centered around digital token classification, compliance and consumer protection, and ICOs.

A key point of concern was whether digital tokens should be treated as securities subject to the full panoply of U.S. securities laws, and how the lack of regulatory guidance from the U.S. Securities and Exchange Commission (SEC) has stalled the progress of cryptocurrencies and ICOs in the U.S.

Three days later, on September 28, 2018, members of U.S. Congress submitted a letter to the Chairman of the SEC, requesting the SEC to do more to clarify its position on the application of securities laws to digital tokens and cryptocurrencies.

The letter summarizes how these legislators are thinking about digital tokens and the current regulatory landscape in the U.S., stating:

“We share your view that digital assets that are offered and sold in a manner properly determined to cause the offers and sales to involve securities or investment contracts must comply with securities laws.  We also agree that not all digital tokens are securities, and we believe that treating all digital tokens as securities would harm American innovation and leadership in the cryptocurrency and financial technology space.  Therefore, we believe it is important that all policy makers work toward developing clearer guidelines between those digital tokens that are securities, and those that are not, through better articulation of SEC policy, and, ultimately, through formal guidance or legislation.  Current uncertainty surrounding the treatment of offers and sales of digital tokens is hindering innovation in the United States and will ultimately drive business elsewhere.”

The letter called for formal guidance on three foundational issues:

  1. The SEC should clarify the criteria used to determine when offers and sales of digital tokens should properly be considered “investment contracts” and therefore offerings of securities.

  2. Do you agree that a token originally sold in an investment contract can, nonetheless, be a non-security as [Director of the Division of Corporate Finance William Hinman] stated?  Can the resultant token be analyzed separately from the original purchase agreement, which may clearly be an investment contract?  And, if so, could the resultant token, nonetheless be a non-security?

  3. Please describe the tools available to the SEC to offer more concrete guidance to innovators on these topics.

A recording of the roundtable event is available here, and a copy of the letter is available here.

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