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June 8, 2018
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SEC, Securities and Exchange Commission, has affirmed its pervious directive that all ICOs (Initial Coin Offerings) are indeed categorized and securities. Therefore, all companies that are currently running an active ICO or planning to launch one need to get in touch with the regulator and register. As noted in an article posted on CNBC, one of the directors working with the regulator stated that the firm is surprised by the companies’ lack of self-reporting.
In an interview that was held on Wednesday this week, SEC Commissioner Jay Clayton clarified that all digital assets and tokens that are using in an initial coin offering are securities. This is based on the fact that the assets are meant to act as seed money to facilitate development and expansion of the new digital currency been created.
SEC has also stated that they expected to see an increase in number of ICOs who submit their registration papers to get the go ahead to hold the ICOs. One of the main reasons why the government through SEC wants all companies offering ICOs to register is to protect investors from fraudsters who offer fake ICOs. In the same interview, Clayton stated that it is the duty of SEC to regulate both the provision of the tokens through the ICO as well as trading of the token after completion of the sale.
When asked why he believes that digital assets are securities, he cited a Supreme Court case that was heard and determined in 1946. In the case, a security was defined as an investment of money into a common enterprise that an investor expects to get a profit after a given period of time. This definition is widely referred to as Howey Test not only here in the United States but also in other parts of the world.
The Howey Test has proven to be effective in helping financial regulators to compare and contrast the characteristics of an investment to determine if should be categorized as a security. Redfearn, one of the SEC Commissioners, also stated that not all digital assets could be easily categorized as securities as each has unique characteristics and functions.
Securities and Exchange Commission will continue to use all its resources and personnel to evaluate all ICOs and clarify issues related with classification of the tokens securities. It is also expected that the commission will publish more reports and findings in a bid to empower the ever-growing digital world about the classification process.
Redfearn was also asked he considered the premier and popular cryptocurrencies such as XRP, Bitcoin, and Ethereum as securities. He however declined to give a direct answer to this question and instead opted to state that the agency would release statements on the said digital currencies in the near future.
Most of the crypto companies such as Ripple have been adamant that their currency does not qualify to be listed as securities due to its utility use. The bottom line is that, clear guidelines about the classification process and the characteristics of a security will help to improve and streamline the industry
