Some blockchain token projects may be allowed to bypass U.S. securities registration requirements by obtaining so-called no-action letters from the Securities and Exchange Commission (SEC), according to an agency official.
Speaking at a gathering in New York on Thursday hosted by the Wall Street Blockchain Alliance (WSBA), Valerie A. Szczepanik made it clear that such letters would be rare. Nevertheless, they are not unheard-of.
“I think that’s a way forward for a lot of people who want to implement some of these things that may not exactly fit in the format of the rules that we want,” – said Szczepanik, who was appointed the SEC’s first-ever senior advisor for digital assets and innovation in June.
She said that generally, token issuers have three options if they want to conduct an initial coin offering (ICO): they can register as a securities offering, apply for an exemption or “make sure they’re not a security.
But in limited cases, if the project doesn’t fit the letter of the law or regulation but it fits the spirit and can accomplish all the goals of investor protection, the SEC may issue a no-action letter, which states that the agency’s staff will not recommend that the commission an enforcement action against the issuer. As Szczepanik explained:
“The letters set forth exactly what the person plans to do or the entity plans to do and if it’s something that the SEC feels comfortable with we can release a no-action letter for exemptive relief saying the commission can recommend no enforcement action.”
“In this space, I think there is room for people to come in and we have had folks coming in either on a confidential basis or with proposals,” – she said.
Speaking more broadly as to how a token may be classified as a security, Szczepanik explained that any determination would be based on how the sale is structured.
It’s a rare set of circumstances where a token will not be classified as a security during a sale. Generally, investors in a project will be looking for a profit, which is sufficient for the classification.