SEC Orders Crypto Exchanges To Properly Register Their Businesses
U.S. Securities & Exchange Commission (SEC) has ordered cryptocurrency exchanges to adhere to proper regulatory requirements. The federal regulator recently issued this statement:
“If a platform offers trading of digital assets that are securities and operates as an ‘exchange,’ as defined by the federal securities laws, then the platform must register with the SEC as a national securities exchange or be exempt from registration.”
These orders come at at time when the SEC has subpoenaed several cryptocurrency-related businesses and activities. Notably, TechCrunch founder Michael Arrington’s $100 million crypto-fund was recently called into question by the American regulator. Presumably, this crackdown is part of what appears to be a concerted effort by the watchdog to exercise more control, while attempting to bring order and some sort of stability to the nascent digital currency market.
“Misimpression” Of Business Operations
Although U.S. regulators like the CFTC have vowed to adopt a “do no harm” approach while regulating the crypto industry, meaning they won’t unnecessarily interfere with the operations of legitimate crypto businesses, they still have some major concerns. These being the following:
“The SEC staff has concerns that many online trading platforms appear to investors as SEC-registered and regulated marketplaces when they are not. Many platforms refer to themselves as “exchanges,” which can give the misimpression to investors that they are regulated or meet the regulatory standards of a national securities exchange.”
Moreover, the federal watchdog also noted that the information provided on crypto-exchanges’ websites should not be treated with the same level of “integrity” as that which is found on the more established, traditional securities exchanges. In response to SEC’s remarks, Spencer Bogart, partner at Blockchain Capital LLC, a venture capital firm that invests in blockchain startups, said that the regulator “continues to draw a line in the sand between securities and non-securities but without going so far as to name names.”
SEC To Focus Regulatory Efforts More On “Alt Coins”
In addition to these comments, Bogart added that SEC’s regulatory efforts will probably be directed more towards the “altcoins”, instead of the more mainstream cryptocurrencies such as Bitcoin. It’s possible, according to Bogart, that this could help Bitcoin further increase its market share. He then went on to say, “Of all crypto assets, bitcoin seems least likely to be deemed a security — by a long shot.”
Despite numerous warnings from regulatory authorities regarding cryptocurrencies, it is still not quite clear what the criteria is for a digital asset to be considered a security. It appears that, currently, one of the very few guidelines available for determining whether an asset is, in fact, a security is by using the “Howey Test”. This test originates from a 1946 Supreme Court case, which outlined a general criteria for classifying assets as securities. Notably, the final ruling asserted that whenever money is invested in a typical enterprise, through which the investor seeks profits from the investments made by others in his/her behalf, then that particular investment is called a security.
Based on this definition, it appears to be fairly clear what can actually be considered a security. However, once more crypto-related businesses have gone to court and rulings have been issued, a more updated legal precedent might be established.