After the Howey test that determines whether certain transactions qualify as ‘investment contracts’, there’s new framework recently suggested two SEC commissioners and published on SEC’s official website. The new “Framework for ‘Investment Contract’ Analysis of Digital Assets” will enable individuals and organization to understand whether the digital assets and related services they are offering could be considered as investment contracts or not. The official notes also clarify that the new framework is only the representations of the SEC commissioners’ views and perspectives and it should not be taken as a rule, regulation, or statement of the U.S. Commission.
Bill Hinman, director of the SEC’s Division of Corporation Finance and Valerie Szczepanik, Senior Advisor for Digital Assets and Innovation – two staff members at SEC have made significant efforts behind the creation of this new framework. According to these two SEC commissioners, the newly created framework isn’t something you can rely on to get the legal advice rather it is an analytic tool that individuals and startups can use to determine whether their ICOs and token issuing falls under the definition of a security under the U.S. federal securities laws.
The official press notes further clarified that the new framework doesn’t replace or modify the existing rules, regulations, and laws. Hence, the market participants are suggested to consult at the SEC’s Strategic Hub for Innovation and Financial Technology (FinHub) where all previously published documents are available.
With this new framework, the SEC is aiming to educate the individuals and business entities who are associated with blockchain-based financial technologies and new methods of raising capital. As per the SEC guidelines, whether the market participants should be aware that the activities they are engaged with fall under the federal securities laws. Further, it also stated that it is must for the market participant to get registered with SEC and even if not registered, it is must for them to know the digital assets they are offering are subjected to SEC’s jurisdiction.
The information within the new framework applies to the individuals and business entities who are associated with the offering, selling, distributing, and marketing cryptocurrencies. Further, businesses that offer exchange and trading facilities, crypto traders and investors, and experts that offers financial services such as management or advice and other professional services can also get benefited from the framework in terms of determining whether their offerings are considered as investment contracts and therefore a security. With or after applying this analytic tool, if the market participants have any confusion regarding the services they offer can be considered as security or not, they can get in touch with the Staff through FinHub’s webforum.