SEC Publishes Determining Framework For Digital Assets

The United States Securities and Exchange Commission (SEC) officially published a new framework recently. It determines whether digital assets go under the terms investment contract or securities. The recent announcement reached our altcoin news today, dubbed the ‘’Framework for Investment Contract Analysis of Digital Assets.’’

The framework was published today by the SEC with an official statement.

The new framework was created by two commissioners: Bill Hinman who is the director of the SEC’s division of corporation and Valerie Szczepanik who is the Senior Advisor for Digital Assets and Innovation.

The authors make clear that the framework should not provide formal legal advice. They stress that it only serves as an analytical tool for Initial coin offerings operators and token issuers. Both of these will be able to determine whether their subject goes under federal security law. All of the market participants should consult the regulations and rules on the Strategic Hub for innovation and financial technology of the SEC.

The regulatory framework mostly focuses on determining if a digital asset can be considered security or an investment contract. According to the Howey Test, an investment contract only exists if there is an investment in a similar enterprise. This is the case only if investors can expect profits that others produce.

The framework by the SEC goes in detail of all aspects of the Howey Test starting with the money investments. They discuss the elements of a common enterprise as well. The authors also note that ‘’in evaluating digital assets, we have found that a common enterprise typically exists.’’

The regulatory draft has more than six pages for the most important question:  ‘’a reasonable expectation of profits derived from the efforts of others.’’ This is usually the biggest issue when analyzing digital currencies under the Howey test.

The authors stress that most of the inquiry for the criteria is based on the economic reality of the transaction. It goes on to say:

 “What character the instrument is given in commerce by the terms of the offer, the plan of distribution, and the economic inducements held out to the prospect.”

The SEC has been called on many times to bring improved regulatory clarity but so far, it seems like we are standing in one place.