SEC revises guidance on crypto tokens and investment contracts

The US Securities and Exchange Commission has refreshed its guidance on when digital assets and cryptocurrency transactions may come under federal securities law, according to en.coin-turk.com. The changes address token buybacks, network functionality and staking-related receipts, and broadly focus on whether a central party controls a project’s essential management.

The revised material appeared in an update to frequently asked questions first published in March. The SEC stressed that the document is informational rather than legally binding. It does not change existing law, create fresh duties for market participants or amend the obligations already imposed by securities legislation.

Instead, the agency said the FAQs represent its current view of how the Howey test can apply to different digital assets and crypto arrangements. The test comes from a 1946 US Supreme Court decision and is used to determine whether a transaction amounts to an investment contract. Its main elements include putting money into a common enterprise while expecting returns that will come primarily from other people’s efforts.

What the updated guidance covers

The SEC said a token issuer may be able to establish a buyback programme for customers when the underlying crypto system is already operating and no central authority directs it. Where no central party is responsible for the project’s essential managerial work, the associated tokens would be less likely to qualify as investment contracts under federal securities law, based on the agency’s explanation.

The update also considers networks designed to provide useful functions or make an existing system more effective. A network that delivers practical services, improves its functionality or strengthens the connections among its participants may not satisfy the conditions for an investment contract, the SEC said.

Another area addressed by the agency is staking. Users of proof-of-stake networks can receive tokens representing their participation or interests in a staking arrangement. The SEC indicated that these staking receipt tokens are not automatically securities. Their treatment depends on the details of how they are created, distributed and used.

The guidance does not establish a blanket classification for any of these activities. The agency’s explanation places considerable weight on whether an identifiable entity remains responsible for the managerial efforts on which investors might rely.

A regulatory response without new legislation

The SEC’s move followed a comparable step by the Commodity Futures Trading Commission. The CFTC regulates derivatives and commodity markets in the United States and has been seeking a larger role in oversight of the expanding digital-asset industry. Its responsibilities can overlap with the SEC’s when regulators must decide whether a particular asset is a security or a commodity.

The parallel guidance from the two agencies comes after the Senate failed to approve legislation that would have set out clearer responsibilities for them in crypto regulation. With congressional action stalled, officials at both bodies have indicated that they intend to address gaps through their existing authorities while waiting for lawmakers to provide a broader statutory framework.

That approach leaves the US crypto market operating amid continuing uncertainty. Agency guidance can explain how regulators currently view particular structures, but the SEC’s own notice makes clear that the updated FAQs do not carry the force of law. The classification of a digital asset therefore remains dependent on the facts surrounding its design, operation and management.

The developments also illustrate the limits of relying on separate agency initiatives in place of comprehensive legislation. The SEC and CFTC are moving in similar directions, but their overlapping areas of authority continue to make the regulatory boundary between securities and commodities an important issue for the industry.

Change ahead at the SEC

The agency is also preparing for a change in its leadership. Commissioner Hester Peirce plans to leave the SEC on October 2 and is due to begin work as an associate professor at Regent University’s law school in November. Peirce has been on the commission since 2018 and is well known in cryptocurrency circles for her supportive approach to digital assets.

After her departure, the SEC will have Chair Paul Atkins and Commissioner Mark Uyeda as its Republican members. The commission normally has five seats and is intended to have bipartisan representation. As of Monday, President Donald Trump had not announced nominees for Peirce’s seat or for the commission’s two other vacant Democratic positions.

The vacant seats create another point of uncertainty as the SEC develops its approach to digital assets. Industry observers are watching for the administration’s nominations and for signs of how a reshaped commission could influence future decisions on crypto tokens, staking and the role of central control.