SEC Prepares ‘Fool’s Guide’ On ICOs to Clarify Which Tokens are Securities


As governments look to define their regulatory stance on Cryptocurrency and Initial Coin Offerings, the U.S. Securities and Exchange Commission (SEC) has promised to clarify the long-standing confusion about how cryptocurrencies may be classified as securities.

A director of the commission, William Hinman while speaking at the D.C. Fintech Week assured the audience of the SEC’s resolve to develop a clear and comprehensive guide that will help developers and investors when planning and participating in token sales.

Hinman said the manual will be written in “plain English” referring to its intended clarity and ease of understanding. He explained:

“…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.”

Details of the New ICO Guideline from SEC

He further explained that the document will not only define if a token is a security or not, it will also give step by step guide on how to proceed thereafter.

“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,'” he said.

He said the commission wants to also give entrepreneurs and developers an understanding of how it views the projects and tokens post-ICO.

Earlier in the year, Hinman declared that ethereum, which was launched through an ICO in 2014, was not deemed a security—much to the relief of the cryptocurrency community. He gave an insight into the criteria used to classify a token sale as security or not singling out the expected ROI as a key factor.

Hinman explained:

“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 so 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.”

The guideline is expected to address other issues such as crypto custody, token evaluation, and accounting standards.

The SEC director did not give any timeline for the release of the guidelines. He noted that the SEC was trying to be transparent with the process. “I think we can try to bring that together and share that,” he said referring to some concerns raised from draft registration statements received by the commission.

Hinman suggested that the SEC is doing its best to ensure there is no confusion over which ICOs are securities or not. According to him, the commission newly established the FinHub to provide quick answers to whatever questions people had about securities and security offerings. Developers, he said, can direct their questions to the FinHub if they are not sufficiently addressed in the Guide.

Clarification for Crypto tax

As crypto enthusiasts await SEC’s detailed guide, they could use better guidelines on how to calculate their cryptocurrency taxes. The guidelines released by the Internal Revenue Service (IRS) dates back to 2014 long before bitcoin and other cryptocurrencies garnered global attention.

As Smartereum reported, a group of U.S. lawmakers wrote a letter to the IRS demanding updated and more comprehensive guidelines on how to calculate taxes from crypto investments. The lawmakers, who are members of the House of Representatives committee on Ways and Means, argued that taxpayers needed additional clarity to better understand and comply with their tax obligations when using virtual currencies. Japan announced last month that it was making improvements to its current tax filing system so as to help investors report their tax gains more accurately.

Solomon Sunny is the market reporter for Smartereum, one of the global leaders in Ethereum, blockchain and currency news. He produces technical price updates on digital currencies and writes recent developments about blockchain.


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