In its bids to clarify the conditions that warrants the application of securities laws to token sales, the U.S. Securities and Exchange Commission (SEC), through its commissioner— Hester Peirce, recently made it known that the agency is actively working on “supplemental guidance” to help projects determine “whether their crypto-fundraising efforts fall under the securities laws.”
The Howey Test
Despite having the popular Howey test – a well recognized and accepted test designed to determine whether something is security, Peirce made it clear that there is a need to be very careful, simply because the resemblance between token offerings and traditional securities offerings is not always clear.
Unlike with decentralized tokens where capital raise is not truly controlled or owned by an individual or company, Capital raised from traditional securities, is usually controlled by issuers or promoters. The commissioner also said that the Howey test is “overly broad, ”.
No time was estimated when the guidance will be released. One thing is however clear, the guidance will be less technical than the previous ones. This is is simply because the agency is trying to make it possible for an average individual understand it. This was confirmed last year by William Hinman, SEC director of corporation finance. Hinman said that: “the regulator intends to release “plain English” guidance for developers on when and how crypto tokens may be classified as securities.”
Lack of SEC Regulatory Clarity Is Good for the Young Market
According to Peirce, the current delays in bringing regulatory clarity is mostly for the good of the crypto community. As the lack of clear cut regulations allow “more freedom” for the industry to expand and various projects to mature.
“If we act appropriately, we can enable Novation on this new frontier to proceed without compromising the objectives of our securities laws – protecting investors, facilitating capital formation, and ensuring fair, orderly, and efficient markets,” she added.