U.S. securities regulator unveils legal framework for digital coin offerings

WASHINGTON (Reuters) – Technology trading start-ups may be permitted an exemption to raise capital using digital currencies or “tokens” under the current securities law framework, a top U.S. financial regulator said on Thursday.

But firms must develop a transition plan after three years to show whether those products can be traded under a “decentralized” framework, SEC Commissioner Hester Peirce said.

The long-awaited proposal by the U.S. Securities and Exchange Commission to allow trading platforms to issue Initial Coin Offerings (ICOs) comes after the regulator previously said the tokens can be considered securities and are subject to the same safeguards required in traditional securities sales.

Peirce unveiled a proposal to offer a three-year window to develop a network that allows for tokens “to be distributed to and freely tradable by potential users, programmers and participants in the network,” while preserving important protections for token purchasers.

ICOs have become a bonanza for digital currency entrepreneurs, allowing them to raise millions quickly by creating and selling digital tokens with no regulatory oversight.

The latest proposal aims to provide a legal framework for the offer and sale of tokens under the federal securities laws.

The agency’s proposal, which is subject to public consultation, would require firms to include disclosures tailored to the needs of token purchasers. They would include information about the source code and a development plan, as well as an initial development team, among other details, Peirce told an industry audience in Chicago.

Technology platforms must also disclose applicable anti-fraud provisions and clarity on when a token transaction constitutes a securities transaction at the end of the three-year period.

“I see this proposal as a path forward that achieves the objective of getting token purchasers the information they need, but it is also just a sketch – a work in progress – that requires productive engagement from the public,” Peirce told Reuters.

Reporting by Katanga Johnson; Editing by Chizu Nomiyama and Dan Grebler

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