On November 12, SEC Chairman Paul S. Atkins radius at the Federal Reserve Bank of Philadelphia, describing the agency’s evolving approach to digital assets as part of its digital asset regulatory initiative, “Project Crypto.” Atkins said the SEC is evaluating a “symbolic taxonomy” based on the “Howey test” created by the Supreme Court, which evaluates whether a particular instrument constitutes an investment contract, in an effort to provide greater clarity to market participants. He emphasized his belief that most of the digital asset tokens currently traded were not themselves securities, although some may have been sold as part of an investment contract.
Atkins thanked Commissioner Hester Peirce and the Crypto Working Group for advancing a framework that distinguishes between digital products, collectibles, tools and tokenized securities – with only the latter considered to constitute a security. He argued that “economic reality,” not labels, should determine whether a cryptoasset is a security. Atkins also said investment contracts could terminate, allowing tokens to be traded outside the scope of securities regulation once the issuer’s “essential management efforts” have ceased – referencing language proposed by the Howey test.
Atkins also announced that he hoped the SEC would consider a set of exemptions to facilitate capital formation for cryptoassets associated with investment contracts and expressed support for legislative efforts to enact a “comprehensive crypto market structure framework.” Atkins emphasized that the SEC’s regulatory efforts were intended to complement, not replace, Congressional action, and committed to continued coordination with the CFTC and banking regulators to ensure appropriate oversight of non-security cryptoassets, noting that anti-fraud provisions would remain in effect regardless of an asset’s classification.
(See source.)
