The US Securities and Exchange Commission (SEC) will be clarifying its stance on securities laws – as they apply to cryptocurrency token sales.

In a speech delivered at the University of Missouri School of Law, Hester Peirce, a prominent SEC commissioner who’s known for supporting crypto-related initiatives, stated that the securities regulator was preparing “supplemental guidance” for firms planning to launch initial coin offerings (ICOs). Peirce explained that SEC’s guidance would help companies determine “whether their crypto-fundraising efforts fall under the securities laws.”

Although the Howey test (a US standard that helps in determining whether an asset is a security) is supposed to provide regulatory clarity, Hester noted that there’s currently a “need to tread carefully” as token sales may be structured differently from traditional security offerings.

She explained that funds raised from decentralized token sales might not be controlled by a single person or business entity. However, traditional securities are controlled and issued by companies – which makes them easier to regulate because there’s already an established set of guidelines for ensuring compliance.

Current Regulations “Overly Broad”

Per the SEC commissioner, the application of the Howey test can be “overly broad”, which might make securities laws difficult to interpret when issuing crypto tokens.

In November 2018, William Hinman, the SEC director of corporation finance, had acknowledged that there needs to be more clarity as to how securities laws apply to cryptoassets and other types of investments. Hinman had also said that the SEC would be releasing guidelines in “plain English” for crypto firms planning to issue their own tokens.

Notably, Peirce believes “ambiguity” regarding cryptocurrency regulations “is not all bad.” She added that blockchain startups might have “more freedom” to work on their projects as specific regulations for digital assets have not yet been developed.

“Protecting Investors, Facilitating Capital Formation”

Peirce further noted that the SEC is currently trying to determine when and how new crypto regulations should be introduced. She remarked:

If we act appropriately, we can enable innovation on this new frontier to proceed without compromising the objectives of our securities laws – protecting investors, facilitating capital formation, and ensuring fair, orderly, and efficient markets.

She conceded that the SEC can, at times, be “impulsive” when responding to crypto and blockchain projects. The commissioner stated:

We owe it to investors to be careful, but we also owe it to them not to define their investment universe with our preferences.

In July 2017, the SEC had (for the first time) announced that certain securities laws may apply to ICOs. The regulator’s comments came after examining Ethereum’s Distributed Autonomous Organization (DAO) project, which fell victim to a malicious attack that resulted in losses worth $60 million (at the time).