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SEC Hints at Flexibility for Crypto Startups Through “No Action” Letter

SEC Hints at Flexibility for Crypto Startups Through

SEC Senior Adviser for Digital Assets and Innovation Valerie A Szczepanik has indicated that in certain circumstances, ICOs may be able to avoid registration requirements.

Speaking in New York at a gathering hosted by the Wall Street Blockchain Alliance, the SEC official has suggested that in certain cases an application doesn’t fit SEC law or regulation “but that it perfectly fits the spirit accomplishing all the goals of investors protection”.

In such cases, a “no-action letter” can be issued to blockchain token projects which recommend no SEC action against the token issuer. Szczepanik explained:

“The letters set forth exactly what the person plans to do or the entity plans to do and if it’s something that the SEC feels comfortable with, we can release a no-action letter for exemptive relief saying “we can recommend no enforcement action”.”

William Hinman, the SEC Director of Corporation Finance maintains that in his view although the Ethereum platform is completely decentralized, it doesn’t currently qualify as a security. New token projects may well have an opportunity to gain SEC registration through the “no action” approach. Szczepanik argues:

“I think that’s a way forward for a lot of people who want to implement some of these things that may not exactly fit in the format of the rules that we want.”

The SEC came under fire in September regarding its current punitive regulations for cryptocurrency, accused again of a lacking a sufficient working knowledge, when a group headed by former Morgan Stanley managing director Caitlin Long and Bitcoin core developer Bryan Bishop, wrote a letter endorsed by prominent experts in the industry.

Referring to the SEC’s current regulations, the letter suggested that bad rules can only serve to damage the burgeoning industry stating:

“Current SEC rules surrounding custody do not reflect the risks inherent in managing digital assets and do not use the technical strengths of the technology. These technical strengths have the potential to lead to a stronger, more robust custody environment.”

The group suggested that the SEC gain insight into the industry by engaging with cryptographic engineers, software developers, Bitcoin exchanges, smart-contract designers, blockchain developers, and existing digital-asset managers.

 

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Crypto Pioneers Attack SEC over Regulation in Joint Letter

A group of crypto pioneers has laid out concerns about the regulation of cryptocurrencies to the US Securities and Exchanges Commission (SEC), outlining caution that further regulations passed could be detrimental to the industry as a whole.

The news of this letter to the SEC follows another written last week by the US Congress in which they asked for more clarity on cryptocurrency security. Congress also said that they believed that cryptocurrency important for many sectors of the US economy and that the SEC’s view that all cryptos are securities, besides Bitcoin and Ethereum, is leading to an exodus of crypto and blockchain companies and talent from the United States.

This latest letter from the industry itself against intrusive regulation is sure to put added pressure on the SEC to find a solution which is suitable to all. A major warning to the SEC was about the very nature of cryptocurrency which is that it was designed to be held by a third party, rather the individual, and any future regulation would need to keep this in mind.

The letter was a crypto who’s who cosignatory document including dotcom veteran Christopher Allen, Bitcoin core developer Bryan Bishop, financial expert Angus Champion de Crespigny, blockchain attorney Gavin Fearey and Caitlin Long, most recently Morgan Stanley’s managing director.

The letter explained that cryptocurrencies shouldn’t be type-cast due to their unique qualities and as such warned that “fitting them into existing market infrastructure introduces risks to investors that would not otherwise exist”.T he letter also warned against “applying rules to digital assets in ways which do not reflect their strengths”.

Earlier in June, SEC Chairman Jay Clayton clarified that the regulators had no intention of changing their traditional regulatory approach. He said:

“We are not going to do any violence to the traditional definition of a security that has worked for a long time. We’ve been doing this a long time. There’s no need to change the definition.”

Clayton was referencing a Supreme Court ruling from 1946 which defines a security as an investment of money in a common enterprise, in which the investor expects profits from others’ efforts. Those in the crypto industry have always maintained that cryptocurrencies, tokens, and ICOs, as assets rather than securities, need further legal definition.

 

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