Bill Hinman, Director of Division of Corporation Finance and Valerie Szczepanik, Senior Advisor for Digital Assets shared a public statement dated 03 April on contract analysis of digital assets. The duo are personnel of the Securities and Exchange Commission (SEC).
The statement commenced by conveying the versatile uses for blockchain and distributed ledger technologies. These innovations have helped in creating financial instruments that almost mimic the operations of traditional securities. Such financial offerings in crypto space are mostly in the form of tokens.
Bill and Valerie added on the logistics of token offerings. Based on the nature of the digital asset like what rights they entitle users to, they may fall under the bracket of US federal securities laws. There is also a dependency on how such tokens may be offered and sold that may bring them in the purview of securities.
The duo cited on the latest offering of a framework on digital assets as –
“As part of a continuing effort to assist those seeking to comply with the U.S. federal securities laws, FinHub is publishing a framework for analyzing whether a digital asset is offered and sold as an investment contract, and, therefore, is security. The framework is not intended to be an exhaustive overview of the law, but rather, an analytical tool to help market participants assess whether the federal securities laws apply to the offer, sale, or resale of a particular digital asset.”
The statement further clarified that the Division of Corporation Finance would not recommend enforcing a digital asset in cases of non-compliance. This implies that the SEC would not act on approving a digital asset that is without registration under the US federal securities laws.
Bill and Valerie emphasized that as financial technologies and businesses evolve, such institutions have to be mindful if their transactions fall under SEC jurisdiction. There could be some activities or transactions that may require registrations of individuals or entities. The duo stressed that even without registration, securities would require the SEC oversight.
In February, Apple had specified in its latest filing with the SEC, that it is forming the Blockchain guidelines of Responsible Minerals Initiative (RMI). The filing was titled “Summary of Apple’s Commitment to Responsible Sourcing”. The document explains Apple’s business practices, and the ethics followed with its interest in the blockchain sector.
The statement concluded by capturing a vital aspect that careful analysis is very important when analyzing a digital asset and marking it as security. Careful consideration should also be given on how such assets are offered and sold. Participants were encouraged to reach out to SEC staff to clear any ambiguity.