SEC Commissioner Peirce, AKA Crypto Mom, Answers Burning Questions

In February, U.S. Securities and Exchange Commission (SEC) Commissioner Hester Peirce, referred to as “Crypto Mom” by many cryptocurrency enthusiasts, answered some of the industry’s most burning questions in an interview for Securities.io. The following is an overview of that interview.

Maturation of Blockchain Technology

Praising the growing maturity of blockchain technology, Peirce is glad that people are asking a lot of probing and specific questions and “holding projects to a higher standard.” In fact, she anticipates continuing development this year. Much of that development will happen abroad, and the U.S. can learn from what other nations are doing with blockchain. For instance, when it comes to progressive blockchain regulation, Malta, Switzerland, and others are leading the way. “I do think that we would see more maturity if the securities law framework were more clear than it is. It’s a bit of a chicken and egg problem, you can’t see as much development without regulatory clarity, and you can’t see the regulatory clarity without knowing what it is you’re  providing clarity for,” Peirce remarked.

For Issuers: SEC Regulations Clarified

If you issue digital assets, one burning question you might have is whether your tokenized asset qualifies as a security. Lawyers and regulators use the Howey Test as guidance on this issue. “Howey” is a reference to SEC v. W.J. Howey Co., a key U.S. Supreme Court decision. According to Commissioner Peirce, the key criterion here is "whether you are selling the token to folks wrapped with a promise that you as a promoter are going to do something to make that token increase in value." If you do indeed play a role in increasing a token’s value, then your tokenized offering is subject to further regulation as a security. For potential issuers of securities, Commissioner Peirce recommended FinHub on the SEC website as an invaluable resource. Although this resource does not provide legal advice, it offers individuals some important considerations that will help them decide how they would like to issue their offerings.

Peirce Discusses Safe Harbor Proposal to Help Token Startups 

In an International Blockchain Congress speech, Commissioner Peirce recently proposed a regulatory safe harbor for new token projects. The safe harbor would allow a token startup development team to delay its security determination for three years.

Here are the main requirements:

• First, within three years of its first token sale, the team must intend for the network to decentralize, or it must offer token functionality. 

• Second, on a publicly accessible website, the team must make some important disclosures. 

• Third, the token offering must facilitate network access and participation. 

• A fourth requirement is “good faith and reasonable efforts to create liquidity for users.” Additionally, a notice of reliance would be required. 

Commissioner Peirce Weighs in on Amendments to “Accredited Investor” Definition 

Becoming an accredited investor under Regulation D of the Securities Act enables an individual or entity to access a greater number of private placement offerings than non-accredited investors. The SEC is considering amendments to the “accredited investor” definition. Commissioner Peirce explained that the proposed changes focus on institutions and entities rather than individuals. On the individual side, however, Commissioner Peirce requested that people file public comments with the SEC by March 16, referencing File No. S7-25-19. Here’s how she summarized the constructive feedback she’s been receiving about individual accreditation thus far: “We are essentially judging financial sophistication by one metric, and that is by how wealthy you are. So there are a lot of people who have told me that they would like to see the individual class of what an accredited investor is expanded to - people who have demonstrated their financial sophistication in other ways.”