Key Takeaways
- SEC Chair Paul Atkins outlined the agency’s Project Crypto initiative to address digital asset fraud enforcement.
- The SEC plans to develop a token taxonomy based on the Howey test to differentiate between securities and non-securities.
- Digital commodities, collectibles, tools, and network tokens may not be classified as securities under the new framework.
- Tokenized securities will continue to be regulated by the SEC, with potential for tailored offering regimes for certain crypto assets.
- Enforcement will remain robust, with coordination with other regulatory bodies for non-securities related illicit conduct.
SEC’s Project Crypto and Digital Asset Regulation
U.S. Securities and Exchange Commission Chair Paul Atkins recently detailed the regulator’s strategy for enforcing digital asset fraud laws, a key component of its Project Crypto initiative. This initiative is designed to modernize the SEC’s approach to overseeing the rapidly evolving digital asset landscape.
In prepared remarks delivered at the Federal Reserve Bank of Philadelphia, Atkins shared insights into the agency’s upcoming plans. A significant development expected in the coming months is the establishment of a token taxonomy.
💡 This taxonomy will be anchored in the established Howey test, the legal standard used by the SEC to determine whether a transaction qualifies as an investment contract and thus a security. The goal is to recognize that an investment contract can eventually reach its conclusion.
Atkins referenced observations from Commissioner Hester Peirce, highlighting that while a token’s initial launch might involve an investment contract, these promises may not persist indefinitely. Once the conditions of an investment contract are deemed to have been met or concluded, the associated token may continue to trade, but these subsequent trades would no longer be considered securities transactions.
Under Atkins’ leadership, the SEC intends to consider various digital assets that might fall outside its purview. Specifically, digital commodities, digital collectibles, digital tools, and network tokens are being considered for classification outside of securities, provided they do not meet the criteria for an investment contract. Conversely, tokenized securities will remain under the SEC’s regulatory authority.
“In the coming months, as contemplated in legislation currently before Congress, I hope that the Commission will also consider a package of exemptions to create a tailored offering regime for crypto assets that are part of or subject to an investment contract,” said Atkins.
Enforcement and Market Structure Legislation
Regarding enforcement, Atkins emphasized that the SEC’s plans do not signal a reduction in oversight. Fraud is fraud, he stated, reiterating the agency’s commitment to protecting investors. He also noted that while the SEC focuses on securities fraud, other federal regulatory bodies are equipped to handle different forms of illicit conduct.
The SEC chair also commented on the market structure bill being considered in the U.S. Senate, reinforcing the SEC’s role in investor protection while acknowledging the broader scope of governmental regulatory bodies.
⚡ While the U.S. government faced a shutdown, legislative efforts regarding a funding bill and related legislation, including market structure reform, continued. Lawmakers in the House of Representatives were expected to vote on a funding bill passed by the Senate, intended to extend government operations through the end of January.
During the shutdown, some senators remained engaged in negotiations for the market structure bill. Republican leaders on the Senate Agriculture Committee had released a discussion draft of their version of the bill, indicating forward momentum on this legislative effort.
Expert Summary
SEC Chair Paul Atkins has outlined Project Crypto, a strategic initiative to refine the regulation of digital assets. The agency is working towards a token taxonomy based on the Howey test to distinguish securities from other digital assets. While enforcement remains a priority, the plans suggest a more nuanced approach to various digital asset types, potentially carving out certain categories from direct SEC regulation.
