Promising US Securities Clarity Act consigned to regulatory purgatory
Following the introduction of the Securities Clarity Act (H.R. 8378) by Congressman Tom Emmer, and an immediate referral to the House Financial Services Committee, HR 8378 has since languished in committee purgatory.
The Bill has an interesting goal of amending America’s securities laws to exclude investment contract assets, or in practical terms, most digital tokens, from the definition of security.
More specifically, H.R. 8378, which Rep. Emmer sponsored with support from both Democrat and Republican co-sponsors, would provide regulatory clarity for the launch of an open blockchain network by making contract assets separate and distinct from a securities offering which may be, for example, the initial offering or private sale of those tokens. The bill permits companies that comply with current securities registration requirements or that qualify for an exemption to provide for the distribution of their assets to the public without fear of increased regulatory uncertainty down the road.
It does so with two fairly simple amendments to the Securities Act of 1933:
defining an “investment contract asset” as: "an asset, whether tangible or intangible, including assets in digital form— (A) sold or otherwise transferred, or intended to be sold or otherwise transferred, pursuant to an investment contract; and (B) that is not otherwise a security [under section 2(a)(1) of the Securities Act of 1933]"; and
providing that the term "security" does not include an investment contract asset.
The Bill was generally well received on its introduction, receiving praise from various different interest groups. In particular, Amy Devine, the chief policy officer of the Digital Chamber of Commerce stated that the bill will:
help clarify the legal status of certain digital tokens, an issue that has significantly impacted the growth of the blockchain ecosystem in the United States.
Similarly, Kristin Smith, the Executive Director of the Blockchain Association said that the bill helps:
clarify outstanding issues related to when and how securities laws and commodities regulations apply to digital assets ... [and would do] much to clarify the situation and put into law pro-growth policies for the crypto economy.
Part of the warm reception to the bill has been due to the relative prospects of success for the Bill, particularly in comparison to its precusor Bills, including the Token Taxonomy Act and the Token Safe Harbor, both of which were significantly broader than H.R. 8378. By remaining fairly technology agnostic, and avoiding addressing fraught technological issues like defining “distributed digital ledger” and “decentralization” concepts, the bill is a significant step forward for blockchain and digital assets in America. However, with the election today and a divided Congress, it may be some time before we see any progress on the bill in the financial services committee.