For the past many months, the U.S. Securities and Exchange Commission (SEC) has been working on different plans to introduce clear guidelines for ICOs. Furthermore, the SEC officials have long argued of giving ICO tokens the status of securities. However, nothing concrete has materialized yet so far.
On Monday, SEC’s director of Corporation Finance said that the agency will soon announce clear guidelines. These guidelines will give a clear picture of how ICO tokens can be classified as securities. SEC director William Hinman, while speaking at the D.C. Fintech Week Conference, said that the regulator will release a “plain English” guidance for developers. Hinman says that it will help them determine whether their token-offering can classify as security or not.
“We also will be putting out more guidance, the idea is a plain English instrument that people can look at and they’ll bring together sort of my Howey-meets-Gary speech, and that analysis … We’ll elaborate on that in a very plain English way, so ‘do I think I have a security offering,’ look at that guidance and you should be able to sort things out,” said Hinman.
Working in Coordination With SEC’s FinHub
Just a few days back, the SEC announced a Strategic Hub for Innovation and Financial Technology (fintech), dubbed FinHub. The FinHub acts as the central point of contact between the developers, crypto entrepreneurs, and the SEC. Hinman said that before new token offerings, developers can also seek help from the FinHub. The platform will help to clear all doubts relating to securities and security offerings.
“Once you determine whether you have a security, we’re going to have in that guidance, ‘how do I go about registering’ and ‘how do I go about doing an exempt offering.”
Some of the major issues which the SEC looks forward to addressing include custody, accounting and token valuation. Furthermore, the SEC’s guidance on token offerings in the primary market can also resolve issues relating to secondary market transactions. This will also give developers some insight into how the regulator will treat their tokens post the ICO listing.
The SEC director notes that considering factors like expectations of a return on investment, the agency will decide if the token sale classifies as securities or not:
“If someone’s offering an instrument for money or other consideration to a third party, and that third party expects the offerer to generate a return or so something that will increase the value of the coin or token or whatever they want to call it, and there’s that expectation of return, we’re generally going to see that as a securities offering.”
Crackdown on Illegal ICOs
In the fiscal year ending September 30, the SEC has shut down several illegal ICOs as reported in the agency’s annual enforcement report. A dedicated Cyber Unit of the SEC Division of Enforcement has helped the agency to focus on ICOs cyber-related misconduct.
The report notes that “the SEC’s enforcement efforts impacted a number of areas where the federal securities laws intersect with cyber issues,” this year. Moreover, “the Commission brought 20 standalone cases, including those cases involving ICOs and digital assets,” it reported. By the end of the fiscal year, “the Division had more than 225 cyber-related investigations ongoing.”