SEC, Requires Cryptocurrency Companies To Clearly Disclose Token Information

SEC announcing new disclosure guidelines (Source: Reuters)

The U.S. Securities and Exchange Commission (SEC) advised cryptocurrency companies to clearly disclose if their tokens might qualify as securities. However, specific criteria for determining which assets actually qualify as securities were not provided this time either.

According to a report by CoinDesk, the SEC recently issued new disclosure guidelines, highlighting the need for companies to explain their business structure and token functions more specifically. This is not an official regulation but is meant to provide direction on how federal securities laws could apply to cryptocurrencies. This recommendation was preemptively released ahead of the soon-to-be-launched cryptocurrency task force.

The SEC particularly required companies submitting disclosure documents to clearly state what role their tokens perform, what technology they are based on, and what rights are granted to token holders. Recommendations also included the structure of the blockchain network under development, whether it is open-source, and the expected use of the network.

However, the SEC clarified in an appendix that these disclosure recommendations are merely guidelines with no legal force and do not replace existing rules or laws. This means that while companies are not subject to immediate legal penalties for violations, there is still uncertainty in the regulatory environment.

The SEC had previously issued similar recommendations for stablecoins or meme coins, and this recommendation is also interpreted as sending a signal to the market in the same context. However, there are criticisms that the approach of requiring disclosures without clear criteria on whether cryptocurrencies are securities might actually increase confusion.