SEC will revise previously issued guidance on securities regulation

What’s new? The US Securities and Exchange Commission (SEC) staff will review the agency’s official statements regarding cryptocurrency investments and the application of securities laws to digital assets. This was ordered by the SEC’s acting chairman, crypto advocate Mark Uyeda, following recommendations from the Department of Government Efficiency (DOGE) under the leadership of Elon Musk.

Source: X.com

What else is known? Uyeda noted that a review of these previously issued statements will determine whether they should be “modified or rescinded” to align with the SEC’s current priorities.

The staff will review, among other things, guidance issued in 2019 on assessing whether a digital asset is considered a security under the Howey test. Under former Chairman Gary Gensler, the SEC actively used the test to sue crypto companies for illegally offering securities in the form of digital assets.

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The Howey test, applied in the United States since 1946, determines whether an asset is an investment contract. It contains four criteria: investment of funds, common enterprise, reasonable expectation of profit, and efforts of others.

In other words, the SEC recognizes an asset as a security if investors expect to receive a return on their investment in a company or token managed by third parties, just as it works for stocks in the stock market.

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Also on Mark Uyeda’s behalf, the 2021 statement, which urges investors to exercise caution when investing in mutual funds linked to bitcoin futures, will be reviewed. That statement emphasized the speculative nature of BTC futures contracts, the risk of market manipulation, liquidity constraints, and volatility.

In it, the SEC questioned whether the bitcoin futures market is mature enough to support exchange-traded funds (ETFs) and other investment products without compromising investor protection.

The directive also includes a revision of guidance issued in late 2022 after a series of bankruptcies of large crypto firms such as the FTX exchange. It urges companies with exposure to cryptocurrency markets to openly disclose the potential implications for investors, emphasizing risks related to custody, liquidity, reputational damage, and regulatory scrutiny.