The U.S. Securities and Exchange Commission on April 3, 2019, released its long-awaited framework to assist cryptocurrency companies and industry players in determining whether a particular digital asset is offered and sold as an investment contract, making it a security under U.S. securities laws.
The framework highlights a number of factors that may support a finding that a particular digital asset constitutes a security, and makes clear that a variety of activities relating to digital assets could implicate U.S. securities laws. However, the framework falls short of describing how these various factors should be weighted, and is expected to create additional uncertainty for industry players. Nevertheless, the framework is encouraging as it signals that the SEC is seeking to better understand the industry, is being transparent about the myriad factors it is considering, and is inviting further conversations on what regulations make sense.
It is important to note that, as the SEC itself emphasized, this framework is not law.
Looking ahead, the SEC is expected to continue to issue additional guidance as it receives feedback and develops its thinking around the complex legal and regulatory questions raised by cryptocurrencies. In the meantime, companies should be more thoughtful about how they structure their businesses and approach activities like securities offerings.
Originally published May 12, 2019, on PAI News.
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