The SEC staff has issued recommendations on how crypto assets could fall under existing securities laws.
The SEC’s Corporation Finance division released nonbinding guidelines explaining how crypto could be subject to securities laws and how industry actors should approach disclosures.
According to SEC staff guidance, federal securities laws could apply to crypto, and companies issuing or working with such tokens should enhance the transparency of their business practices.
The SEC’s Division of Corporation Finance stated on April 10 that it issued its guidance to “provide greater clarity on the application of the federal securities laws to crypto assets.”
The Division announced that its decision is based on observed disclosures under current rules, addressing specific disclosure questions raised by market participants with the staff.
While the Division noted that the guidance lacks legal authority, it emphasized that crypto businesses often disclose key aspects such as their operations, token functionality, and both current and planned revenue generation.
The guidance advises crypto firms to clarify aspects of their technology, including the type of consensus algorithm used, block and transaction specifications, reward design, network security strategies, and whether the protocol is open-source.
However, the guidance does not provide definitive direction on whether specific digital assets qualify as securities.
According to SEC staff, issuers typically address risks related to price volatility, cybersecurity, network vulnerabilities, custody, and general business, legal, operational, and regulatory risks in their disclosures.
Issuers often provide a “materially complete description” of a security, detailing mechanisms for dividends, distributions, profit-sharing, voting rights, and how these rights are enforced.
The SEC Division added that companies should specify if the protocol’s code can be modified, who is authorized to make such changes, and whether a third-party audit of the smart contracts has been conducted for security.
The guidance further emphasized that companies should disclose whether the token supply is capped, the process of token issuance, and the names of executives and other “significant employees.”
The Division clarified that the purpose of the guidance is to build on the SEC’s Crypto Task Force, which plans roundtables with the crypto industry to discuss regulatory approaches for crypto trading, custody, tokenization, and decentralized finance.
The U.S. Senate recently confirmed Paul Atkins as the chairman of the Security and Exchange Commission. Under his leadership, Atkins pledges to provide clear rules for digital assets and a supportive regulatory framework.
