Cryptocurrencies have revolutionized the financial landscape, and now people have new opportunities to make transactions, invest, and even raise funds.
Nonetheless, the cryptocurrency market is decentralized and continuously changing, so investors and market participants must deal with different risks. The US Securities and Exchange Commission (SEC) is the agency that has taken on the task of regulating activities related to cryptos.
In this article, you’ll learn more about how the SEC regulates crypto-related activities, and you’ll know about the different tools it relies on to guarantee that investors are safe.
What Is the SEC?
The Securities and Exchange Commission is a federal agency, which is responsible for making sure that federal security laws regulate the United States’ security industry.
Overall, the primary mission of the SEC is to protect investors and ensure that markets are fair and efficient.
Even though the SEC’s rules primarily cover traditional alternatives, the agency has now expanded its control over digital assets and cryptos that meet the definition of securities.
How the SEC Identifies Securities
The most crucial aspect of the SEC’s regulatory measures lies in the agency’s ability to determine whether an asset is a security. To make that determination, the organization uses the Howey Test.
Although there have been many changes when it comes to identifying securities, the Howey Test is still the most reliable measurement. It consists of four elements. The first one asserts that there must be money involved in a common enterprise.
Furthermore, investors must expect to make some profit from the investment made with Ethereum Code. Moreover, their fortunes must be tied to the results or the efforts of the third party or promoter.
Lastly, any profits people earn must be the result of a third party’s efforts. If a digital asset meets these four criteria, under US law, the SEC regulates it.
What Does the SEC Do?
The SEC has always taken a proactive approach when it comes to ensuring the safety of investors. Therefore, the agency has always addressed fraudulent and suspicious activities, using its enforcement power to protect people and bring legal action against those committing crimes or illegal practices.
Some deceptive activities that the SEC has regulated have been Ponzi schemes, frauds, and unregistered coin offerings.
Oftentimes, when the SEC finds out about a deceptive activity, the agency will fine the responsible people, collect their gains, or apply different penalties. In addition, it could try to freeze investor funds if it’s necessary.
At the same time, the SEC has provided specific regulations and guidance to help people understand the complexities of the financial landscape. The agency, for example, gives investors specific information and insight on the Howey Test, which allows them to see if they own securities and understand their options.
The SEC also has a division of Corporation Finance, which has published different guides on token offers. If you read them, you’ll notice there’s an emphasis on complying with security laws when acquiring digital assets.
How Does the SEC Engage with the Industry?
As the article mentioned before, the SEC has recognized the rapid growth of the cryptocurrency industry. Therefore, the agency has tried to adapt and quickly come up with different options and regulations to guarantee that all participants are safe.
In most cases, the SEC encourages people to participate in dialogue and debate about the risks and challenges of the current financial landscape.
The SEC has, for example, held meetings, roundtables, and public forums to gather opinions from stakeholders and come up with new, more effective strategies.
Furthermore, the SEC also currently collaborates with other agencies, such as the Financial Crimes Enforcement Network and the Commodity Future Trading Commission.
What Are the Agency’s Challenges?
Regulating cryptocurrencies is challenging and the SEC often comes across different obstacles. Since the coins exist globally, enforcing universal rules is very complicated because each country is different.
In addition, since technology is constantly evolving and changing, the SEC has to continuously come up with new rules and regulations to adapt to an ever-shifting landscape.
The SEC will most likely continue to refine its strategies and options in the future, even though everything is uncertain. Its primary goal is to find a balance between innovation and security for investors.
When it comes to security, the SEC’s role is vital in the cryptocurrency industry in the United States. The agency wants to protect investors and does so by identifying securities with the Howey Test and coming up with different alternatives and penalties to deal with those engaging in illegal activities.
Moreover, the SEC engages with industry participants, other agencies, and stakeholders to stay up to date and constantly come up with new and more effective options.
The crypto market will continue to grow, evolve, and change. Therefore, the SEC will face new obstacles. However, it will also adapt to this dynamic sector and offer new solutions.