SEC and CFTC Release Crypto FAQ Update: Token Buybacks and Network Upgrades Do Not Necessarily Constitute Securities, CFTC Allows On-Chain Recordkeeping

BlockBeats news, September 26: The U.S. Securities and Exchange Commission's Division of Corporation Finance released an updated set of frequently asked questions on September 25, clarifying that token buybacks, network upgrades, and marketing statements do not automatically make crypto assets securities. SEC staff pointed out that announcing a buyback plan for an already operational crypto network does not by itself make the related token constitute an investment contract, but if the network is not yet operational and the issuer promotes the buyback as a source of returns for holders, the situation may be different. The FAQ also clarified that once a crypto system is operational, services provided to secure, maintain, improve, or enhance the system or its functionality, or to promote network effects, do not constitute managerial efforts under the Howey test. Marketing the current use of a network also typically does not create an expectation of profit, and the same applies to statements about future functionality, provided that profit potential is not promoted. The update reiterated that conclusions will still depend heavily on specific facts and circumstances and builds on the SEC's interpretive release issued in March of this year on the application of securities laws to crypto assets.

The Commodity Futures Trading Commission updated its crypto FAQ the same day, allowing futures commission merchants and clearinghouses to invest customer funds in tokenized versions of previously permitted assets, provided that investment and custody requirements are met. CFTC staff also said that regulated firms may use blockchain for recordkeeping, but must be able to produce records even if the blockchain or its block explorer is unavailable. The two updates come as the CLARITY Act failed to advance in the Senate, with regulators continuing to push forward a crypto regulatory framework under existing law.