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SEC Director Pledges ICO Guidance in ‘Plain English’

The director of corporate finance at the Securities and Exchange Commission has said the regulator is planning to issue clarification around when cryptocurrencies might be deemed securities in “plain English.”

The SEC, which oversees issues relating to financial securities in the U.S., has found some initial coin offerings to have been securities, by the nature of their structure. This has resulted in some ICOs being deemed illegal, and founders being subject to enforcement action, despite a general lack of clarity over the legal status of ICOs.

Now, in a speech delivered at the D.C. Fintech Week conference, director William Hinman said more guidance would be forthcoming for developers.

According to Hinman, developers will be able to use the guidance to determine for themselves whether their ICO might contravene existing securities laws.

“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.

“Once you determine whether you have a security, we’re going to have in that guidance ‘how do I go about registering’ and ‘how do I go about doing an exempt offering.’ ”

Describing how the guidance might look in its broadest terms, Hinman said offering an instrument for consideration in the expectation of a financial return would probably constitute a security.

“If someone’s offering an instrument for money or other consideration to a third party, and that third party expects the offerer to generate a return or 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.”

ICOs that are securities need to be registered with the regulator, and must comply with the same regulatory requirements as other security issues, like IPOs, with criminal sanctions for non-compliance.

The clarification will be welcomed by developers and ICO promoters as a sign of U.S. regulators finally coming to grips with how best to regulate this emerging, crypto-based funding model.