By Bill Flook
A House Republican on March 9, 2020, introduced a bill that would split oversight of the cryptocurrency market between the SEC, CFTC, and other federal regulators.
H.R. 6154, the Crypto-Currency Act of 2020, is sponsored by Rep. Paul Gosar of Arizona. It is the latest in a string of measures that seek to impose a formal regulatory structure on the digital currency market and its underlying blockchain technology.
The bill would split the digital asset market into three regulatory categories. The SEC would be charged with regulating “crypto-securities,” which would be defined as all debt and equity “that rests on a blockchain or decentralized cryptographic ledger” with some exceptions.
“Crypto-commodities” would be regulated by the CFTC while ”crypto-currencies,” currencies or certain derivatives resting on a blockchain or decentralized cryptographic ledger, would fall under the purview of the Secretary of the Treasury, acting through the Financial Crimes Enforcement Network (FinCEN) and the Comptroller of the Currency, according to the bill text.
The regulators, under the bill, would require exchanges trading in the digital assets to register, and would maintain a publicly-available list of those exchanges. And each regulator would keep a public list “of all Federal licenses, certifications, or registrations required to create or trade in digital assets.”
The SEC has worked in recent years to bring some oversight to a digital asset market that has largely been operating outside the bounds of securities law.
In April 2019, the SEC’s Division of Corporation Finance (CorpFin) published staff interpretive guidance setting out a framework for determining whether a digital asset is an “investment contract,” a key aspect of the Howey test. An investment contract falls under the broader definition of a security.
In the April guidance, CorpFin staff noted that the Howey test “applies to any contract, scheme, or transaction, regardless of whether it has any of the characteristics of typical securities.”
“The focus of the Howey analysis is not only on the form and terms of the instrument itself (in this case, the digital asset) but also on the circumstances surrounding the digital asset and the manner in which it is offered, sold, or resold (which includes secondary market sales),” CorpFin staff stated in the guidance. “Therefore, issuers and other persons and entities engaged in the marketing, offer, sale, resale, or distribution of any digital asset will need to analyze the relevant transactions to determine if the federal securities laws apply.”
Critics in the cryptocurrency industry have attacked that guidance as being too narrow in its definition of what is and is not a security.
This article originally appeared in the March 12, 2020 edition of Accounting & Compliance Alert, available on Checkpoint.
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