Burr & Forman

08.2.2019   |   Blockchain & E-Transactions Law, Blog Articles, Digital Token, SEC

Renegade Pandas, Competitive Regulation and a Token Safe-Harbor?

In a July 30 speech in Singapore, SEC Commissioner Hester Peirce compared renegade red pandas’ penchant for life “outside the fence” to the fin-tech innovation currently frustrating regulators’ efforts to keep up.

Eschewing calls for international regulation, she also compared the efforts of multiple national regulators to the oft-cited role of U.S. states as “laboratories of democracy.”  Cataloging some to date, she cited:

  • Singapore’s regulatory “clarity”
  • Thailand’s 2018 regulatory framework
  • Japan digital asset offering legislation and 2017 registration regime for digital-asset exchanges
  • Malta 2018 regulatory regime
  • Switzerland’s guidance.
  • France’s licensing regime
  • Bermuda’s approach to custody

Peirce prefers such “competitive regulation” much as she prefers competitive markets, she said.

Pierce wondered how tokens required to be issued as securities might transition to the point of decentralization where they cease to be securities, as CorpFin Director Hinman suggested of Ether in mid-2018.   Following that thought, she sketched out some preliminary hallmarks of a “token safe harbor” exemption she would be prepared to support:

  • “A non-exclusive safe harbor for the offer and sale of certain tokens”
  • In “open digital token offerings to facilitate participation in open-source software development”
  • That is time-limited
  • Based upon a “workable plan to build operational networks”
  • Permits “trading to get tokens in and out of the hands of developers and users”
  • With a different disclosure regime tailored to tokens, e.g. “how many tokens have been issued, what the process is for issuing more, and how to address inconsistencies between a plain English description of the tokens’ functionality and the functionality as written in the code.”

Those “renegade pandas” working outside of traditional regulatory regimes, she said, “make the life of a regulator especially interesting.”

Her address is here.

Thomas K. Potter, III (tpotter@burr.com) is a partner in the Securities Litigation Practice Group at Burr & Forman, LLP. Tom is licensed in Tennessee, Texas, and Louisiana. He has over 33 years of experience representing financial institutions in litigation, regulatory and compliance matters. See attorney profile.

© 2019 by Thomas K. Potter, III (all rights reserved).


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