Fintech: cryptoassets – navigating a fragmented legal framework

US cryptoasset rules

In recent years, the US Securities and Exchange Commission (SEC) has several enforcement actions in connection with initial coin offerings by companies looking to raise money to create a new coin, app or service.

Some of these enforcement actions related to the sale and offering of tokens that the SEC deemed to be a securities offering where the issue either had failed to register with the SEC or did not qualify for an exemption from the registration requirements of the federal securities laws.

However, in April 2021 one of the SEC commissioners, recognising that the analysis of whether a digital asset is offered or sold as a security is not static and does not strictly inhere to the digital asset, published a proposal for a safe harbour for token offerings.

The safe harbour aims to provide network developers with a three-year period within which they can work on facilitating participation in, and on the continued development of, a ‘decentralized or functional network’. This would be exempt from the registration requirements of the federal securities laws so long as certain conditions are met.

After the three years, there will be a determination of whether the token constitutes a security and the relevant registration requirements should apply or is a decentralised or functional network.

This proposal, despite not necessarily representing the views of all SEC commissioners, shows a way forward for a new regulatory regime for digital assets that has been well received by the cryptoassets industry and legal professionals alike.