SEC Proposal Would Allow Token Sales Under Current Securities Laws

Hester Peirce, a financial regulator at the U.S. Securities and Exchange Commission (SEC), said that tech startups may be able to raise money using digital tokens under current law, but that there would be stipulations, according to a report by Reuters.

Tech firms will have to create a transition plan after a three-year period that illustrates whether the digital coins will be able to be traded in a “decentralized” framework.

The SEC’s proposal has been in the works for a while, and has been long-awaited by many trading platforms. It follows a decision that says tokens can be seen as securities and must be subject to the same kinds of safeguards that are applied to traditional securities.

Under the proposal, firms would have three years to develop a network that would allow for digital coins “to be distributed to and freely tradable by potential users, programmers and participants in the network,” without sacrificing any of the buyers’ protection, per Reuters.

Recently, ICOs have been a highly successful way for companies in the crypto field to raise millions of dollars without being subject to the oversight of regulators. The proposal is meant to create a legal framework for that process, and to allow the tokens to be sold under current securities laws.

The proposal must be subject to a period of public consultation before it can be put into practice. If it is adopted, firms would have to provide purchasers with certain disclosures meant to help buyers. Those disclosures would have to include pertinent information about source code and a development plan, as well as the team that is working on initial development and other technical and helpful information.

“I see this proposal as a path forward that achieves the objective of getting token purchasers the information they need, but it is also just a sketch – a work in progress – that requires productive engagement from the public,” Peirce said.