By Anne Sherry, J.D.
A broker-dealer that operates an alternative trading system (ATS) petitioned the SEC for guidance on when digital assets will be deemed securities and whether firms that facilitate their trading must register as a broker-dealer, ATS, or exchange. Ouisa Capital also asked the SEC to consider adopting a regulatory sandbox similar to those used in the U.K. and Singapore.
Ouisa plans to use blockchain technology as part of the operation of its ATS. It noted in its petition for rulemaking that the SEC evaluates digital assets in the same manner as traditional assets, but that the Commission has not adopted rules, regulations, or interpretive guidance on digital assets. The only guidance in this area is from enforcement actions that suggest a broad swatch of FinTech products and services that could be deemed investment contracts.
The petition recommends that the SEC publish a concept release on the regulation of FinTech and digital assets. The number of firms issuing and trading in digital securities is growing rapidly, and rather than publish a concept release or proposed rules, “the SEC has engaged in enforcement actions against FinTech firms that did not know they were operating in contravention of existing statutes.” A concept release would allow industry participants to raise questions and concerns, which the SEC could address in a regulatory framework. The release should be followed by specific rulemaking regarding when digital assets are securities.
Ouisa also recommends that the SEC explore adopting a regulatory sandbox. In a sandbox, as long as firms’ operations remain within enumerated boundaries, the firms can grow and experiment without excessive regulation. This system is already in place in the U.K. and Singapore, Ouisa notes. In the U.S., a similar approach could be modeled on the regulation of crowdfunding portals, which can opt for SEC or FINRA registration and are limited to certain activities.