Bipartisan Bill Proposes to Exclude Crypto from US Securities Law
Representatives Warren Davidson and Darren Soto want to change a 72-year old federal Securities Act.
A bipartisan duo of US lawmakers has introduced a draft Token Taxonomy Act, which aims to exclude most cryptocurrencies from the scope of federal securities law. The bill, announced on Thursday by Republican Representative Warren Davidson (Ohio) and his Democratic counterpart Darren Soto (Florida), is in direct contradiction to Securities and Exchange Commission (SEC) Chairman Jay Clayton’s position that the existing framework should not be changed to promote virtual coins.
By introducing a definition for digital tokens, the law proposal would change the 1933 federal Securities Act and exclude those coins from SEC oversight. Digital tokens are all cryptos that have a functioning network, the draft reads.
According to Davidson and Soto, the proposal would make the US economy more competitive compared to the countries that have already benefited from crypto investments, including Switzerland and Singapore. The Token Taxonomy Act balances between consumer protection and the “flourishing” of the virtual asset industry, the lawmakers explained.
“Providing this much needed certainty frees the SEC to perform its vital and much needed consumer protection duties of enforcement on those who have engaged in securities fraud by making false claims or simply attempting to engage in regulatory arbitrage to circumvent securities law,” Davidson and Soto said in the joint statement.
Currently, the SEC follows the Howey test when determining whether or not particular assets are securities. The test is a result of a US Supreme Court decision from 1946, which ruled that investment contracts are securities if “a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party.”
“This bill clarifies a 1946 court case that the SEC has been using to determine what a security is and effectively makes it clear that the finished product (or oranges as it relates to the Howey Test) is no longer a security,” Davidson and Soto explained.
In September, representatives from the US digital asset industry and Wall Street urged lawmakers to act to protect crypto investments from leaving the country. Davidson was the organizer of the roundtable at Capitol Hill.
However, just several weeks ago, SEC head Clayton again reiterated his opinion that crypto and blockchain projects should adapt to US securities laws, not vice-versa.