Last week, Jay Clayton, chairman of the US Securities and Exchange Commission (SEC), gave a speech where he offered some insight into how the agency will be treating blockchain projects, specifically ICOs.
Among various different operational and regulatory goals for the coming year, Clayton spoke about the benefits of blockchain technology for raising capital, but cautioned that strict rules will be needed to protect investors from their own poor judgment. Clayton said:
A number of concerns have been raised regarding the digital assets and ICO markets, including that, as they are currently operating, there is substantially less investor protection than in the traditional equities and fixed income markets, with correspondingly greater opportunities for fraud and manipulation.
I believe that ICOs can be effective ways for entrepreneurs and others to raise capital. However, the novel technological nature of an ICO does not change the fundamental point that, when a security is being offered, our securities laws must be followed.
Clayton also addressed the establishment of “FinHub,” a new division in the agency, which is specifically tasked to deal with issues relating to financial technology. Clayton explained:
In an effort to centralize and better coordinate the staff’s work on these important issues, the SEC recently announced the formation of a new Strategic Hub for Innovation and Financial Technology (“FinHub”) within the agency. Staffed by representatives from across the Commission, the FinHub serves as a public resource for fintech-related issues at the SEC. As the FinHub and our other activities demonstrate, our door remains open to those who seek to innovate and raise capital in accordance with the law.
Earlier in his talk, before he made any mention of blockchain or ICOs, Clayton indirectly mentioned a potential rule change that could have huge implications for ICOs. One of the biggest obstacles preventing US citizens from getting involved in ICOs is the “accredited investor” regulations, which prevent the everyday person from getting involved in the market. This is why many ICO sales are not offered in the United States.
According to the SEC’s standards, only investors with hundreds of thousands of dollars in savings are allowed to put money into certain securities. Clayton admitted that it may be time to change this high threshold, saying that:
The staff is working on a concept release to solicit input about key topics, including whether our accredited investor definition—a principal regulatory threshold for participation in private offerings—is appropriately tailored to address both investment opportunity and investor protection concerns.
ICO advocates say that these accredited investor regulations favor the wealthy, and that ICOs have helped to democratize markets by making it possible for the average person to make investments, and thus easier for new projects and startups to get funding.