US SEC Issues Fresh Guidelines on ICOs and Decentralized Exchanges, Makes Registration Mandatory

It seems that time isn’t changing SEC’s approach towards ICO tokens and decentralized exchanges. The US markets watchdog has once again reiterated its infamous and disliked position which says that most ICOs will be treated as security token offerings. Therefore, their issuers must comply with the traditional security laws and legal requirements that are applicable to other issuers of securities.

The guidelines were reiterated in a recent press release published yesterday. SEC said in the release that any tokens sold through an ICO in expectation of an ROI will be considered securities. The statement also revealed that SEC has settled charges with Paragon Coin Inc. and CarrierEQ Inc. Both these companies were charged by the regulator for selling securities disguised as tokens.

The statement released by SEC also touched on the subject of investment companies dealing with cryptocurrencies. It was made clear by the SEC that all such companies will be treated exactly like hedge funds, and therefore they must register with SEC to ensure proper compliance (just as they must register to trade in stocks).

SEC’s harsh stance on ICOs has led to many projects being funded outside United States. This is not surprising at all, given the fact that complying with securities law is one of the most cumbersome things to do for any startup. That’s why early stage companies avoid being listed on an exchange through the IPO. Now if ICOs also take them to the same route, why would they want to raise them?

Decentralized exchanges also need to register

So far there’s nothing surprising in all these requirements. They reflect SEC’s choices from quite some time. What came as a slightly new nugget of information was the registration requirement for decentralized exchanges. SEC said in its press release that decentralized exchanges will be treated just like centralized exchanges, and therefore the developers of those exchanges should also register with SEC. What this means is… you can create a decentralized exchange whose smart contracts don’t give you any power over it once it’s operational, but the SEC won’t spare you. It will still hold you liable as an operator of that exchange. In short, create an exchange and you’re f***ed!

Needless to say that this latest requirement of SEC will also evoke strong reactions from the crypto community. But frankly, there’s not much that we can do about it. If any decentralized exchange wants to provide the service to US-based users, it will have to comply with whatever SEC says.

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US Regulator Wants to Adopt Blockchain to Maintain Pace with Market Manipulators

The chair of the U.S. Commodity Futures Trading Commission (CFTC) has said that he wants to adopt blockchain to “keep pace with those who attempt to defraud, distort, or manipulate” financial markets.CFTC Chairman Giancarlo Envisions Compliance Built into Business Operations Through Smart ContractsJ. Christopher Giancarlo spoke about the use of blockchain and machine learning for regulatory purposes at Georgetown University. The head regulator is confident the digital era will prove to be a positive factor to better oversee financial markets.“These tools will become even more paramount as emerging blockchain technologies seek to decentralize markets or disintermediate traditional actors. It is critical that we have the ability to keep pace with those who attempt to defraud, distort, or manipulate.”Giancarlo gave several examples of adoption of new technologies at the regulatory level.These include “using machines to independently identify segments of the markets where concentration risks or unrecognized counterparty exposures are emerging and flag them for staff consideration and action” and “new machine-learning based surveillance tools” designed to “sniff out patterns of likely illegal trading activity or attempts to manipulate markets for enforcement analysis.”The CFTC chair said the ongoing digital revolution in the world’s trading markets have far-ranging implications for capital formation and risk transfer. He added that he expects the majority of standard tasks to be managed by machines as automation technologies are paired with blockchain to standardize and distribute data to market actors and regulators.“We can also envision the day where rulebooks are digitized, compliance is increasingly automated or built into business operations through smart contracts, and regulatory reporting is satisfied through real-time DLT networks. The machines here at the CFTC would have the ability to communicate regulatory requirements and consume and analyze the data that comes in through such systems.”Giancarlo has recently stated that cryptocurrencies “are here to stay” and that many countries across the globe are hungry for functioning currencies, which shows there is a market for digital currencies. He is, however, skeptical about cryptocurrencies’ ability to rival the dollar or other hard currencies.While the U.S. CFTC is yet to adopt blockchain technology to better oversee financial markets, the financial watchdog has won its first Bitcoin fraud action. A  New York federal court has ordered Gelfman Blueprint and its CEO Nicholas Gelfman to pay over $2.5 million in civil monetary penalties and restitution over their +$600,000 Ponzi scheme.Related Reading: CFTC Chair: Cryptocurrencies Have a Future, They Are Here to StayFeatured image from Shutterstock.