The SEC has released new guidelines aimed at clarifying cryptocurrency compliance
The U.S. Securities and Exchange Commission (SEC) has taken a step towards clarifying how federal securities laws apply to the cryptocurrency industry. On April 10, the SEC’s Division of Corporation Finance released a staff statement providing guidance for companies issuing or trading crypto assets.
Although the guidelines are non-binding and lack legal force, they reflect the SEC staff's observations of existing information disclosure practices in the cryptocurrency space. The guidelines aim to help businesses better understand what types of information should be disclosed when dealing with crypto assets that may be classified as securities.
The statement emphasizes that cryptocurrency-related businesses should clearly and comprehensively disclose their operations, how tokens operate, and the mechanisms by which they plan to generate revenue. While the guidelines do not define what constitutes a security, they outline disclosure requirements that can help businesses avoid regulatory missteps.
Key areas recommended for disclosure
SEC staff outlined several areas where cryptocurrency companies should increase transparency:
The specific nature of the business, including how tokens are issued
Revenue generation models and whether the issuer will continue to participate after the network goes live
Details of the blockchain technology, including whether proof of work or proof of stake is used
Block size, transaction speed, and network reward systems
Cybersecurity measures and whether the code is open-source
The process for modifying protocol code and who has that authority
Security audits of smart contracts (if any)
Token supply mechanisms and issuance details
Identification of company executives and key personnel
The SEC also wants cryptocurrency issuers to disclose all relevant risks, such as price volatility, cybersecurity vulnerabilities, custody issues, and traditional business and legal risks.
Additionally, a "substantively complete description" of any security should be provided, including mechanisms for profit sharing, dividends, voting rights, and how these rights will be enforced.
Establish more formal regulations
Although the guidelines do not answer the long-standing question of which digital assets are considered securities, they provide insights on how businesses can gain a more favorable position before regulators. Legal experts welcome this, seeing it as a step in the right direction.
Attorney Joe Carlasare stated that the statement is a "refreshing step" towards more transparent cryptocurrency regulation. He noted that adhering to these guidelines can help cryptocurrency companies build credibility and better respond to regulatory scrutiny.
The Division of Corporation Finance also announced plans to further promote industry engagement through a series of roundtables. These discussions, led by the SEC's cryptocurrency working group, will cover key areas such as trading, custody, tokenization, and decentralized finance.
The guidelines suggest that the SEC may be taking a more collaborative approach with the cryptocurrency space, indicating a potential shift in the future of digital asset regulation.