US Securities and Exchange Commission (SEC) goes on the offensive with regulation

On its homepage, the SEC publishes a surprisingly clear statement on “potentially illegal online platforms for trading digital assets”. The dispute over the regulation of ICOs and trading platforms in the USA has been smouldering for some time. Now the SEC is ringing in the next round.

For experts, the statement reads as a call to regulate digital currencies and initial coin offerings (ICOs). Registration with the Securities and Exchange Commission is mandatory for trading products that comply with the definition of SEC securities. This applies as long as no explicit exceptions have been granted. To determine whether a product is a security, the US Securities and Exchange Commission follows the 1946 Howey Test. According to the Supreme Court’s ruling, it must be a (cash) payment whose investment is expected to generate a profit. The investment is made in an ordinary company. The profit must be achieved outside the influence of the investors. If this is the case, the SEC speaks of a security.

In the statement, the SEC focuses on Bitcoin news and initial coin offerings

Also crypto currencies and providers of wallets are not scam. The SEC expressly points out that in case of doubt these must register with other state authorities. Although the focus of Bitcoin news regulation is initially limited to the USA, the effects can be felt far beyond the borders.

At the end of the publication, the authority refers to a now quite long list of cases in which the SEC has taken legal action against providers. These include fraud at AriseBank.

Bitcoin formula to be scrutinised more closely

In the Bitcoin formula, the SEC publishes a list of 13 questions that should help private investors to decide to invest: The answer to the question how “prices are determined on the platform” seems difficult. The following question is also broad: “Are all users of the platform treated equally?

Furthermore, the use of the term “exchange” is misleading, argues the SEC. It fears that consumers associate the term with a clearly regulated exchange. Moreover, providers’ statements about security standards and trading protocols should be treated with caution. Although platforms often speak of mature and secure systems, these guidelines are not subject to review. Although there are professional-looking order books on many platforms, “integrity”, as with providers confirmed by the SEC, is not necessarily to be expected.

Analysts are now expecting a series of subpoenas from the responsible platform operators. It is difficult to estimate how realistic it would be to obtain approval from the SEC. Some operators will consider adapting their business models as a precaution to avoid conflict with the authorities.

The platforms must either register with the National Securities Exchange or be granted an exemption. Although there are a number of theoretical exceptions, these do not exempt from regulation. They only subordinate providers to another supervisory authority and not directly to the SEC. From the point of view of the Securities and Exchange Commission, it is a matter of having the providers checked and monitored by a recognised body.