SEC plans on ICOs

US SEC is eyeing to formulate the regulations to Blockchain companies which are engaged in ICO.

With the increase of Blockchain start-ups crowdfunding their projects through ICO, Blockchain experts are worried that the lack of transparency with regards to the issuance of such coins could pose dangers to investors and may be a cause of concern for government regulators as ICOs are "high on radar" of regulators.

It's a virtual nature, ICO is likely and can possibly be used for money laundering activities as Fed thinks.

what is the challenge
The problem facing regulators is the kind of system in which these Blackchain companies are operating. With their decentralized nature meaning no single entity responsible for issuing the coins, while regulators can only go after its third-party service providers which include wallet providers and Bitcoin exchange platforms.

Another problem for the regulators is how to treat this coins: tokens or securities?
In 2014, Janet Yellen, Chair, Board of Governors of the Federal Reserve System clarified that Fed has no jurisdiction for Bitcoins.

"“[T]he Federal Reserve simply does not have authority to supervise or regulate bitcoin in any way. . . . [T]o the best of my knowledge, there is no intersection at all in any way between Bitcoin and banks that the Federal Reserve has the ability to supervise and regulate.”

Section 3(a)(1) of the Exchange Act defines an “exchange” as:

“any organization, association, or group of persons, whether incorporated or unincorporated, which constitutes, maintains, or provides a market place or facilities for bringing together purchasers and sellers of securities or for otherwise performing with respect to securities the functions commonly performed by a stock exchange as that term is generally understood, and includes the market place and the market facilities maintained by such exchange.

Therefore, if a Blockchain technology platform brings together several buyers and sellers of digital assets that are deemed as securities, the platform could be required to register as a Securities exchange unless it falls within an exclusion from registration.

To be classified as securities, the company owning cryptocurrencies would need to provide shares. For instance, SEC held in the matter of BTC Trading, Corp. and Ethan Burnside, specifically because when the company allowed users to purchase stock in virtual currency, they violated Sections 5 and 15(a) of the Exchange Act for not registering as a broker/dealer, or as a national securities exchange.

While ICO tokens continue to be traded without government regulations, it’s only a matter of time until SEC would come up with some form of regulation that may ultimately cause a setback to many Blockchain companies and their ICOs.

Sources: cointelegraph

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