SEC Releases FAQ on Applicability of Federal Securities Laws to Crypto Assets

The U.S. Securities and Exchange Commission's Division of Corporation Finance has released a FAQ on the applicability of federal securities laws to certain crypto assets and transactions.

The FAQ, issued on September 25, clarifies that the definitions and categorizations are staff opinions, not rules or regulations, and do not create new obligations. The Commission emphasized that these are interpretive guidelines, not statements of law, and that issuers should consider their own representations and commitments when determining whether a crypto asset is a security.

The FAQ builds on the Commission's previous categorization of crypto assets into five categories: digital commodities, digital collectibles, digital tools, stablecoins, and digital securities. The first three categories are generally not securities but may fall under investment contracts depending on the manner of issuance. Payment stablecoins may be excluded by law, while other stablecoins are fact-dependent.

The FAQ also addresses the concept of 'functionality' in determining whether an issuer has fulfilled its representations or commitments. The staff stated that issuers set their own thresholds for functionality or decentralization to meet their representations, and that promotional and marketing statements constitute representations or commitments to engage in necessary management efforts depending on specific facts and circumstances.