The U.S Securities and Exchanges Commission (SEC) has plans in place to solve a common problem faced by crypto startups looking to organise an ICO.
According to SEC Official, William Hinman, Director of the Division of Corporation Finance, the agency is planning to release a framework that will define when cryptocurrencies or ICO tokens are to be considered as 'securities’. It will be a “plain English” instrument for developers to decide what class their token belong to.
A part of Mr. Hinman speach at D.C. Fintech Week conference was:
"We also will be putting out more guidance; the idea is a plain English instrument that people can look at and they'll bring together sort of my Howey-meets-Gary speech, and that analysis ... We'll elaborate on that in a very plain English way, so 'do I think I have a security offering,' look at that guidance and you should be able to sort things out."
Attached to the new framework will be a guide on what the next step should be for developers after they have understood what their offering is. That is, whether to get ‘registered’ or run an ‘exempt offering’ Hinman explained.
Inside The STO Regulation To Be Rolled Out By The U.S SEC
Even though the SEC official did not provide a timeline on when the STO (Security Token Offering) regulatory framework will be made available to the public, he shared insights into what criteria the agency will be looking at before labelling a crypto token as ‘security’.
Among the points mentioned are accounting, custody and token valuation which he claimed the agency will review transparently. Also, whether investors are expecting a return from their investment in a token is another issue that will determine whether it is a security token offering.
"If someone is offering an instrument for money or other consideration to a third party, and that third party expects the offerer to generate a return or so something that will increase the value of the coin or token or whatever they want to call it, and there's that expectation of return, we're generally going to see that as a securities offering," Mr. Hinman said.
US-based startups and ICOs offering their tokens to U.S citizens will really hope that the issue of what counts as a ‘security’ is cleared up soon since it will help them to decide which region will be best for their public sale.