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The SEC has now filed charges against Coinbase, Inc., and Binance Holdings, each a well-known crypto asset trading platform and custodian. These lawsuits allege a number of securities law violations, with striking implications for all asset managers.
Here are the key takeaways:
- Both firms were charged with as unregistered securities exchanges, brokers, and clearing agencies. The basis of these claims is that the crypto assets which Coinbase and Binance facilitate are “securities”:
- The Commission alleges 13 known crypto assets traded on CoinBase meet the definition of a “security” under the test establish in seminal case, SEC v. W.J. Howey Co., 328 U.S. 293 (1946).
- The Commission alleges 15 crypto assets traded through Binance are securities. Notably this includes the Binance native Stablecoin, BUSD, among its other native crypto assets.
- The Commission’s allegations included well-known tokens, such as SOL, ADA and ATOM.
- Despite labelling BUSD and ADA each as a “security”, the Commission did not allege Ethereum or Bitcoin were securities.
These charges represent a pivotal moment in the SEC’s approach to cryptocurrency regulation, potentially broadening the scope of what is considered a “security” in the crypto world.
Given these developments, we strongly advise you to review your compliance efforts in regards to crypto assets. Both Exempt Reporting Advisors and Registered Investment Advisors are required to implement a “Code of Ethics’ governing the personal account dealings of your firm’s access persons. You should consider how this change could affect their Code of Ethics obligations and reporting requirements for crypto assets. If your firm does not currently require reporting related to crypto assets holdings, this may be considered a violation of Rule 204A-1, given the Commission’s current position that many of these assets are, in fact, securities.
If you trade or deal in these assets you should consider the effect of the SEC’s new view on these activities, particularly regarding brokerage and trading operations, and custodial arrangements. You will need to consider potential conflicts of interest with employees that trade in the same crypto assets.
We can help
The team at Ocorian are closely tracking global developments around crypto regulation. We are experts in SEC regulation and can help review your current compliance framework in light of these new cases.
