SEC Releases Framework for “Investment Contract” Analysis of Digital Assets

As part of a continuing effort to assist those seeking to comply with the U.S. federal securities laws, the SEC’s Strategic Hub for Innovation and Financial Technology (FinHub), published a framework for analyzing whether a digital asset is a security.

On April 3, the SEC’s Director of Division of Corporation Finance, Bill Hinman, together with Senior Advisor for Digital Assets and Innovation, Valerie Szczepanik, announced the “Framework for ‘Investment Contract’ Analysis of Digital Assets”, noting its aim is to help determine whether a digital asset is a security and thus subject to US federal securities laws.

The announcement reads, “The framework is not intended to be an exhaustive overview of the law, but rather, an analytical tool to help market participants assess whether the federal securities laws apply to the offer, sale, or resale of a particular digital asset”.

It also warns market participants to be aware that they may be conducting activities that fall under the SEC’s jurisdiction.

Market participants may engage in activities that require registration of transactions and persons or entities involved in those transactions.  Even if no registration is required, activities involving digital assets that are securities may still be subject to the Commission's regulation and oversight.

Bill Hinman, Director of Division of Corporation Finance & Valerie Szczepanik, Senior Advisor for Digital Assets and Innovation

More specifically, the information contained in this framework may apply to entities conducting the following activities related to digital assets:

  • offering, selling or distributing
  • marketing or promoting
  • buying, selling, or trading
  • facilitating exchanges
  • holding or storing
  • offering financial services such as management or advice
  • other professional services

As a cautionary note, the announcement emphasizes that the new framework “represents Staff views and is not a rule, regulation, or statement of the Commission. The Commission has neither approved nor disapproved its content.  This framework, like other Staff guidance, is not binding on the Divisions or the Commission.”

Click here to read the full framework.

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