Ripple has submitted an official response to the US Securities and Exchange Commission (SEC) Crypto Task Force’s call for public input on regulatory clarity in the crypto industry. Legal representatives of the blockchain-based payment company responded to the Commission’s request titled “There Must Be Some Way Out Of Here” suggesting a regulatory approach based on existing laws and targeted at clear and concise market guidance.
Ripple Rejects SEC ‘Weaponized’ Howey Test In Crypto Cases
In a letter submitted on March 21 to the SEC Commissioner and Head of the Commission’s Crypto Task Force Hester Pierce, Ripple’s Chief Legal Officer Stuart Alderoty alongside General Counsel Sameer Dahoud, and Deputy General Counsel Deborah McCrimmon, shared certain recommendations on drafting regulations for the digital asset industry.
Firstly, Ripple stated that most digital assets were beyond the regulatory scope of the SEC as they do not qualify as securities under the Securities Act of 1933 and the Securities Exchange Act of 1934. Representatives of the blockchain firm strongly criticized the extensive application of the Howey Test to crypto transactions noting the absence of investment contracts or common enterprise in these cases.
Alderoty and colleagues pushed against the SEC’s regulatory influence in a crypto market lacking securities even in the presence of crimes as there are appropriate governance agencies for such cases. Rather, these executives suggest the SEC adopted a similar approach to the memecoins where it declared that these tokens do not qualify as securities and are outside its jurisdiction.
In regards to yield staking programs, Ripple has urged the Commission to clearly define that automatic arrangements that see investors earn from the operations of public permissionless networks e.g., staking, cannot be classified as securities. This is because, unlike traditional securities, there is no direct effort of any third party or contractual agreement to generate profits for the investors.
On Safe Harbors, Sand Boxes And ICOs
Ripple executives also expressed the company’s thoughts on the proposed safe harbors and sandboxes noting the relevance of which only becomes valid after the US Congress concludes its delegatory oversight of the crypto industry. However, they do admit the potential of these ideas in supporting innovation and averting unnecessary enforcement actions in the digital asset space.
Interestingly, Alderoty and colleagues suggest initial coin offerings may be suitable subjects for an SEC safe harbor as there is a promise to build an exchange or blockchain post-token sale—unlike token sales on already established networks. However, Ripple’s legal counsel admonishes the Commission in setting clear regulations that can distinguish between ICO and non-ICO cases.
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