Good news for blockchain token projects concerning their ability to bypass U.S. securities registration requirements. While before they had to stand in the queue to fill out all the documents, now they can obtain so-called no-action letters from the SEC.
That also means that there’s no need to be worried about getting their application rejected, in case they can’t match up with the requirements.
Agency official, Valerie A. Szczepanik, at a gathering hosted by the Wall Street Blockchain Alliance in New York confirmed that information but made it clear that such examples should be rare. Nevertheless, they are not unheard off.
Valerie A. Szczepanik was appointed to SEC’s brand new position of Senior Advisor for Digital Assets and Innovation for Division Director Bill Hinman, and Associate Director of the Division of Corporation Finance.
“I think that’s a way forward for a lot of people who want to implement some of these things that may not exactly fit in the format of the rules that we want.”
What this actually means is that token issuers will now have three options if they want to conduct an initial coin offering (ICO). Szczepanik explained that one of the ways is registering as a securities offering. Second solution would be applying for an exemption, and the third way would be assuring that they’re not a security.
In limited cases, the SEC could decide that “maybe this doesn’t fit the letter of our law or regulation but it fits the spirit and we can accomplish all the goals of investor protection,” Szczepanik said.
In those rare instances, the SEC may issue a no-action letter, which states that the agency’s staff will not recommend that the commission an enforcement action against the issuer.
As Szczepanik explained:
“The letters set forth exactly what the person plans to do or the entity plans to do and if it’s something that the SEC feels comfortable with, we can release a no-action letter for exemptive relief saying ‘we can recommend no enforcement action.’”
Her remarks signaling a modicum of flexibility are notable in light of SEC Chairman Jay Clayton’s advice last month to anyone raising money by selling a token that they should “start with the assumption that it is a security.”
Szczepanik also explained that any determination would be based on how the sale is structured.
“It’s a rare set of circumstances where a token will not be classified as a security during a sale. Generally, investors in a project will be looking for a profit, which is sufficient for the classification.
If it’s a fully developed ecosystem or a blockchain and a token will be issued that will be used …. And that’s what people buy it for, there’s no promise of profit, I think that’s a potential and that’s up to people to propose it so that it makes sense.”
Assuring the security, the William Hinman, the SEC Director of Corporation Finance, said that in his view a popular blockchain platform Ethereum is completely decentralized to the point, but it doesn’t really qualify as security at present.
SEC Chairman: ICO Projects Shouldn’t Shy Away From the Securities Laws
At the beginning of the month, Jay Clayton, Chairman of the SEC said the SEC has sound rules that have withstood the test of time and that they should not be changed to adapt to technology – just because it’s new on the scene.
He then said:
“Technology ought to be able to fit into our rules. And I think this technology has incredible promise for adding efficiency to our marketplace, but I’m not going to change the investor-protection aspects of those offering rules or those trading rules just because there’s a new technology.”
Clayton added a caveat to this saying that quality ICO projects shouldn’t shy away from following the securities laws.
“The novel technological nature of an ICO does not change the fundamental point that, when a security is being offered, our securities laws must be followed.”
Clayton also added that the entire SEC staff has “spent a significant amount of time” focusing on crypto assets and digital currencies. Furthermore, he expects this trend to continue even the next year.