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Regulation

SEC ICO guidelines are changing

Maya Mandz | Mar. 12, 2019
SEC ICO guidelines are changing

March 13, 2019. | AtoZ Markets - The current SEC guidelines for ICOs have become more balanced, viewing the ICO as an established feature of the financial space. Along with the recent statements of the SEC on ICOs, it seems that the US regulator is starting to accept ICOs more. 

The first SEC guidelines consisted of warnings on ICOs

The declining acclaim of the ICOs does not prevent the US Securities and Exchange Commission (SEC) from closely monitoring these digital assets. Since the financial authority announced in 2017 that ICO tokens can be considered as securities, it has been issuing various recommendations and warnings on ICO to investors.

In the beginning, the US SEC guidelines were used by the authority to highlight the potentially fraudulent nature of these digital assets. Moreover, the first financial watchdog’s guideline on ICOs was completed with a summary of “potential warning signs of investment fraud”.

The updated SEC guidelines and statements on ICO ’s have become more balanced showing that the US authority is slowly learning to accept this digital asset.

The SEC guidelines are required to have more clarity on ICOs

In general, the crypto industry welcomes a new and more balanced US SEC approach to the aforementioned digital assets. However, certain groups require additional and clearer guidance from the US financial authority. The experts claim that there is a feeling that in the Commission’s classification of cryptocurrencies there are still certain gray areas. The Blockchain Association in its turn speaks of a “growing sense of urgency” assuring that such issues will soon be resolved.

Current SEC ICO guidelines in brief

The SEC updated guidelines became available from March last year on the authorities official webpage. And now the SEC started promoting their projects through social media and Twitter in particular. The US authority shared five points of their update guidelines that can be useful for beginners. And this implementation is confirmed in a simple and understandable format of the five guidelines, as shown and explained below:

  • "ICO may be securities offers." In essence, this is a warning that the cryptos offered for the sale of tokens may fall under the SEC jurisdiction, and, therefore,  need to be registered with the commission.
  • "Perhaps they should be registered." Re-warning that some tokens may need to be registered with the SEC.
  • "The tokens sold in the ICO can be called many things." The warning that having a different or unusual name does not prevent the SEC from classifying the token as security.
  • "ICO can pose a significant risk." Warning that some ICOs may be fraudsters. This item includes a warning that, even if the ICO is not fraudulent, the tokens sold may be lost, hacked or manipulated prices.
  • "Ask questions before investing." The US financial authority urging consumers to get clear answers to any questions before buying any tokens.
  • "New SEC guidelines consist of additional notes for professionals." The US financial authority recommendations also include four additional indexes for investors and brokers.

Investors are advised to investigate how tokens will be sold also individuals and companies offering tokens, know that tokens can be sold internationally (and therefore can avoid using SEC), and be suspicious of offers that are to be true."

Exchanges are encouraged to comply with securities laws, register whether they sell securities, and protect the interests of investors and their clients. The focus is on the fact that tokens can be securities, as they often promise future returns (one of the key components of the Howie test).

The Blockchain Association welcomes new SEC guidelines

Although some issues have yet to be resolved, the emphasis on the applicability of the law on securities is welcomed by Christine Smith from the Blockchain Association. In one of her latest interviews, Smith noted that the latest SEC recommendations are a positive step for the industry:

"It’s helpful that the SEC has been clear that organizations using tokens to raise funds must comply with securities laws, but the nature of these projects means that there is still a grey area for some tokens. We think that makes a lot of sense that some tokens be treated as securities because it helps close the information gap between investors and creators of a project. It’s a complex environment, so having some clarity on that issue is key."

Softening up the current SEC guidelines

The latest US SEC recommendations show a shift in the US authority attitude toward ICO. The financial watchdog seems to start considering digital assets as a legitimate investment area, although the SEC guidelines still contain many warnings about ICO risks.

In the first half of 2018, SEC Chairman Jay Clayton said that he was “shocked” by the level of fraud that the commission faced in the ICO space and welcomed the efforts of Canadian and US securities officials to crack down on fraud related to ICO.

Such public attitude created the impression that the US SEC views the ICO as a largely illegitimate space in which fraudsters effectively rob robust investors.

Although some of Clayton’s early comments indicate that the SEC saw real potential in selling tokens, official statements and commission bulletins reinforced this impression.

SEC guidelines publications in brief

In July 2017, the SEC issued a newsletter for investors, in which two final sections of the statement were devoted exclusively to fraud.

Similarly, in August 2017, the authority issued another warning to investors, which not only focused on ICO fraud but also informed potential investors about the risk that sold tokens could be subject to market scam.

During 2018, the US SEC took a less rigid view of ICO and cryptography, despite the fact that in November the commission investigated dozens of token sales and closed a handful of coin projects.

SEC attitude toward ICO stays positive

The Blockchain Association representative Christine Smith assumes that the delay of the SEC with the adoption of clear and decisive regulation should give the cryptocurrency more opportunities for development in accordance with its internal dynamics and logic.

It is likely that SEC mitigation goes hand in hand with two things. First of all, taking a tougher stance on ICO at the end of 2017 and until 2018, the Commission can now be confident that it copes better with this digital assets and that it can be more moderate and measured in its declarations. Secondly, the fact that ICO and wider crypto projects have settled down over the past few months has also helped to soften the SEC attitude.

Clarifying SEC ICO guidelines

Despite the fact that the SEC over time has paid less attention in its messages to the fraudulent aspects of ICO, the cryptocurrency industry is still not completely satisfied with the current approach to it.

The blockchain association, in turn, is pleased that the latest recommendations of the ICO commission have been simplified and made more accessible. However, Smith reports that the trade association requires more clarity from the SEC as to when tokens are, and not, securities.

At the moment, the SEC has recognized that at least some cryptocurrencies (for example, Bitcoin and Ethereum) are not securities, and have taken a more favorable position in relation to cryptocurrency. However, Smith argues that this does not give her sufficient confidence in the future.

SEC ICO guidelines are getting more balanced

However, some industry representatives agree with the Blockchain Association. According to them, the SEC has a more balanced approach to ICO and crypto and does not try to be too restrictive.

The SEC may not have issued formal guidelines or resolutions on the ICO, but despite the initial awareness of the ICO, they have space for work and development.

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Tags SEC ICOs USA
Disclaimer: The views and opinions expressed in this article are solely those of the author and do not reflect the official policy or position of AtoZ Markets.com, nor should they be attributed to AtoZMarkets.