The SEC Announces Top Ten Priorities of the Cryptocurrency Working Group, Website Officially Launched

Original Title: "SEC Announces Top Ten Priorities for Crypto Task Force, Webpage Officially Launched!"

Original Translation: Mary Liu, BitpushNews

A new broom sweeps clean.

Following Gary Gensler's departure, the new leadership of the U.S. Securities and Exchange Commission (SEC) has been quite active recently. Today, they officially launched a brand new cryptocurrency task force webpage: https://www.sec.gov/about/crypto-task-force and announced the top ten priorities. This series of actions marks a significant shift in the SEC's regulatory strategy towards cryptocurrencies, moving from the previous emphasis on "enforcement" to a gradual transition towards "guidance and regulation."

From clarifying the security attributes of cryptocurrency to exploring cross-border regulatory cooperation, this "priority list" authored by Hester Peirce, the Head of the Cryptocurrency Special Working Group at the SEC covers several core issues in the cryptocurrency field. At the same time, the implications of reduced enforcement efforts provide more breathing room for industry participants, signaling the formation of a more flexible and inclusive regulatory environment. Whether you are an investor, entrepreneur, or industry observer, these trends are worthy of close attention.

The following is the original text with slight abridgment for readability:

The Journey Begins

When I was a child, my family used to drive from Ohio to Maine for vacation every year. It was a completely different era. There were no cell phones; if the car broke down, we couldn't call for help. There were no cellphone navigation apps, only paper maps and handwritten directions on pieces of paper. There were no online hotel reservations; we had to pull over when we saw a sign to see if there were vacancies. There were no podcasts or audiobooks, just the crackling sound of the radio, barely picking up local stations. My brothers and I didn't have rear-seat screens to watch videos; we could only play one "low-tech" game: scanning passing cars' license plates, collecting plates from different states. Nowadays, road trips are much different. In most ways, technology has made travel more enjoyable and safer.

The newly announced Crypto Task Force sets out on a "crypto journey" that should be even more enjoyable and secure than the path the SEC has led the industry on over the past decade.

During the past journey, the committee refused to use its regulatory tools at hand, instead repeatedly hitting the enforcement brake, moving along a winding and meandering path with a destination unclear to anyone. Just as modern technology cannot completely eliminate the risks of road travel, this new journey towards regulatory clarity is still fraught with danger. Both the committee and the public need to remain vigilant, aware of the risks and opportunities that may lie ahead. I am excited to embark on this journey with a talented group of SEC staff, and we look forward to engaging with many enthusiastic members of the public to help us navigate. With this help, I hope we can reach a better place than we imagine, rather than stumbling like we did on the last crypto journey. Before discussing the commitments and opportunities of the working group, please allow me to make some important disclaimers.

First, although I am now responsible for leading the SEC's new cryptocurrency working group, the views I express are my own and do not necessarily represent the position of the SEC or other commissioners. The committee's position always requires a vote by the commission.

Second, we have spent a long time in this state of confusion and will need some time to get out of it. The committee has been engaging with the crypto industry in various forms for over a decade. In 2013, the first Bitcoin exchange-traded product (ETP) application was submitted to us, and in the same year, the committee also dealt with a crypto-related fraud case. In 2017, we released the DAO Section 21(a) report, applying the Howey test to the crypto space for the first time. Since then, we have taken multiple enforcement actions, issued some no-action letters, provided some exemptive relief, mentioned crypto issues in numerous speeches and statements, met with many crypto entrepreneurs, participated in various cross-agency and international crypto working groups, discussed aspects of crypto in rulemaking proposals, reviewed crypto-related issues in registration statements and other filings, and approved multiple rule changes for crypto exchange-traded products proposed by self-regulatory organizations (SROs). However, the committee's treatment of crypto has always faced legal ambiguity and commercial impracticality.

Therefore, many cases are still in litigation, many rules are still in the proposal stage, and many market participants are still in a state of uncertainty. Untangling these complex issues, including ongoing litigation, will take time. This will involve efforts across the entire institution and cooperation with other regulatory bodies. Please be patient. The working group hopes to reach a good destination, but we need to achieve this goal in an orderly, practical, and legally defensible manner.

Third, the working group aims to head to a destination where people can freely experiment and build interesting things, rather than being a haven for fraudsters. The strength, efficiency, and effectiveness of the U.S. capital markets are partly due to our establishment of rules aimed at protecting investors and market integrity, and our enforcement of these rules. We do not tolerate scammers, fraudsters, and cheats. As the working group helps to develop this regulatory framework, anti-fraud protection measures will be carefully considered. If the committee finds fraudulent behavior beyond our jurisdiction, cases can be referred to other regulatory bodies. If no regulatory body has jurisdiction over this, the committee can bring this gap to the attention of Congress.

Fourth, the working group is working diligently to help create a regulatory framework that can achieve both the Commission's key regulatory goals (including investor protection) and preserve the industry's ability to provide products and services. This framework will operate within the statutory authorities granted to the Commission, and we will also collaborate with other regulatory bodies operating within their statutory authorities. Current law does not allow a free-for-all within our jurisdictional products. Congress has set the parameters, and the Commission will enforce them. Congress has also granted us waivers, which the Commission will use judiciously. When Congress requires the Commission to impose requirements on market participants, the SEC's rules will not let you do as you please. Some of these rules will bring costs and other compliance burdens, which may be uncomfortable for some, and the Commission will use its enforcement tools when necessary to address non-compliance.

Fifth, Commission staff are working hard to process waiver relief applications, no-action letter requests, and registration statements, but an increase in the volume of applications may pose challenges. Applications that comply with technical and legal requirements, undertake reasonable legal analysis, and provide comprehensive and timely responses to staff inquiries will help conserve Commission resources and achieve regulatory clarity more quickly and smoothly. As always, this due diligence will help applications proceed more smoothly through the approval process; conversely, a lack of due diligence may result in unnecessary delays. Being the first to submit an application does not necessarily mean being the first to be approved.

Sixth, the new commitment to a better regulatory environment should not be seen as an endorsement of any cryptocurrency or token. Whether these tokens or tokens fall within our jurisdiction or not, the Commission never endorses any product or service; there is no such thing as an SEC seal of approval. Issuing tokens and tokens is easy. If people want to buy tokens or products that lack a clear long-term value proposition, they are free to choose, but they should not be surprised if prices fall someday. In this country, people generally have the right to make decisions for themselves, but the flip side of this wonderful American freedom is an equally wonderful American expectation: people must make their own decisions, not rely on "government mom" to tell them what to do or not do, and not expect government assistance when they make mistakes.

Now, with these somewhat stiff disclaimers out of the way, let's talk about what the working group is working on with the staff of various policy departments of the Commission. We will collaborate with other federal government departments, state securities regulators, and international counterparts. We invite builders, enthusiasts, and skeptics to engage with us to jointly explore what the final rules should be and what interim measures can be taken to promote innovation during this period. The staff of the Commission has reached a milestone—the revocation of Staff Accounting Bulletin 121–but there is still much work to be done. The following list is not exhaustive and is not arranged by priority or expected completion order.

· Asset Status: The status of a security asset under securities law is key to addressing many other issues. The working group is actively researching various types of security assets.

· Scope Definition: The working group will help determine areas that fall outside the committee's jurisdiction. As a first step, staff welcomes no-action letter requests. A no-action letter is typically a statement issued by staff in response to a particular situation, indicating that the staff will not recommend enforcement action to the committee in those circumstances. While these statements are situation-specific, they also provide a window for the public to understand staff thinking.

· Token Issuance: The working group is also considering recommending that the committee take action to provide certain token issuances with temporary forward-looking and retrospective relief, provided that the issuing entity or another responsible entity provides specific information, keeps the information current, and agrees not to challenge the committee's jurisdiction in fraud cases involving the asset's sale or purchase. These tokens would be considered non-securities, allowing them to trade freely on secondary markets not registered with the SEC as long as the information remains current and accurate. This approach aims to bridge the gap until more permanent rules or legislation are established. It will provide a path for existing tokens to move out of uncertainty and encourage more disclosure.

· Registered Offerings: The working group will consider collaborating with staff to recommend changes to the committee's existing registration paths, including Regulation A and crowdfunding, to provide viable avenues for those interested in registering token issuances.

· Special Purpose Broker-Dealers: The working group will explore the possibility of updating the current form of the no-action statement for special purpose broker-dealers, which has not been very successful. Preliminary changes we might propose include expanding the scope of the statement to cover broker-dealers that custody both security and non-security crypto assets. We will work with the public to identify other registration barriers.

· Investment Adviser Custody Solutions: We will collaborate with investment advisers to provide an appropriate regulatory framework that allows advisers to securely, legally, and practically custody client assets either themselves or through third-party custodians.

· Crypto Lending and Staking: We need to clarify whether crypto lending and staking programs fall under securities law jurisdiction and, if so, how they are governed. We plan to help address the legality of structuring these programs.

· Crypto Exchange-Traded Products: The committee has received rule change proposals from self-regulatory organizations for listing new types of crypto exchange-traded products. The working group will collaborate with staff to provide explicit statements on the methodology used when approving or denying these applications. The working group will also aid staff and the committee in considering requests to modify certain features of existing exchange-traded products, including enabling staking and in-kind creation and redemption. However, progress may be needed on custody and other issues before these changes are implemented.

· Clearinghouses and Transfer Agents: The working group also plans to explore the intersection of crypto with the rules of clearinghouses and transfer agents. We will continue to collaborate with market participants interested in tokenizing securities or using blockchain technology in other ways to modernize traditional financial markets.

· Cross-Border Sandbox: Many crypto projects have an international scope. The working group is considering how to facilitate cross-border experiments on a limited scale and within a temporary time frame, and may explore more permanent, long-term solutions.

This brief overview of how the working group envisions the future journey is not exhaustive or definitive, but I hope it piques your interest. Despite the significant obstacles to reaching a destination of reasonable, clear rules, if we can collaborate, this journey promises to be an exciting and rewarding one.

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