SEC Acting Chair Mark Uyeda has called for a review of a number of staff statements on digital assets, hoping to kickstart the process of possibly changing or withdrawing them. The intention is to bring them in line with the White House’s recent policy directive on deregulation, plus certain recommendations from the Elon Musk-led Department of Government Efficiency (DOGE).
Interestingly, the SEC made the announcement on the social media platform X – this past Saturday – referring to the interim chairman. Uyeda said he has requested that agency staff “promptly” review seven staff statements issued between 2019 and 2022, and five of the seven statements up for review pertain to digital assets.
“The purpose of this review is to identify staff statements that should be modified or rescinded consistent with current agency priorities,” he added.
News outlets asked for more details on the social media post, but the SEC declined to comment beyond citing this X posting.
SEC items up for review
Howey test
The oldest item Uyeda targeted was an April 2019 analysis conducted by what was known as the Strategic Hub for Innovation and Financial Technology that outlined the characteristics of how an investment contract could apply to initial coin offerings or token sales by issuers.
That statement went into detail about when a transaction involving digital assets might bring a sale, offer or resale of such assets into the agency’s purview by triggering the three prongs of the Supreme Court decision in the Howey case.
Since the Republicans have taken the helm at the SEC, the idea of using a new and clearer rule has emerged as a defining objective, and task forces and roundtables have been assembled in anticipation of crafting them.
Qualified custodian standards
Uyeda also said the staff will review a November 2020 statement from the agency’s Division of Investment Management that asked for input on whether state-charted banks meet its qualified custodian standards.
A qualified custodian is a financial institution that meets certain regulatory standards for holding client assets, ensuring they are protected from loss, misuse, or misappropriation and are typically banks, savings associations, registered broker-dealers, or registered futures commission merchants.
In February 2023, the SEC proposed amendments to its custody rules that explained requirements for digital assets – and certain requirements would have limited certain state-chartered trust companies from being able to act as qualified custodians for crypto assets. Uyeda himself touched on this topic in a speech last month, saying the SEC staff was planning to look for alternatives to clear the path for such state-chartered businesses.
Bitcoin futures
Also being reviewed: The Division of Investment Management’s guidance to investors interested in investing in a mutual fund with exposure to the bitcoin futures market to carefully consider the risk disclosure of the fund, calling bitcoin and the bitcoin futures market “highly speculative.”
Special focus by exams team
The social media post also lists a September 2021 risk alert from the agency’s examinations team about its observations during examinations of investment advisers, broker-dealers and transfer agents regarding digital asset securities to help those firms with their compliance practices. The alert starts from the premise that such assets will continue to be a priority focus of examinations.
Special disclosures
Uyeda also referred to a risk alert issued in February 2021 that outlined activities related to the sale, offer and trading of digital assets that are securities and present unique risks to investors.
And he cited a statement from December 2022 that referred to specific risks that could require closer attention in terms of disclosure, particularly bankruptcy or general financial distress – predicaments a good number of digital asset firms have faced.
Also in the “special disclosure” category was his reference to two pieces of guidance – Topic 9 and Topic 9A, as they were referred to in short – issued by the Division of Corporation Finance regarding the operations, liquidity, and capital resources disclosures companies should consider with respect to business and market disruptions related to COVID-19.
Path forward
Every week comes with some special meeting on the topic of digital assets at the SEC, and here’s the latest one (which we are covering): The SEC’s Crypto Task Force is hosting a roundtable called Between a Block and a Hard Place: Tailoring Regulation for Crypto Trading.
“Hearing the public’s concerns and suggestions helps the SEC create a clear, sensible, and fair path forward for the crypto industry,” said Commissioner Hester Peirce, who is leading the Crypto Task Force.
The main topic of the event is Tailoring Regulation for Crypto Trading, and it features regulators, crypto firms, exchanges, academic institutions and capital market firms.
