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Two interesting developments have recently come out of communication from the Securities & Exchange Committee (SEC). The developments, generally viewed as positive by industry commentators, could have lasting impacts in the investment industry.
In separate communications, the SEC released guidance on how and when crypto may fall under a securities classification and Chairman Jay Clayton suggested the accredited investor rule may need tweaking.
For starters, last week the SEC published regulatory guidance for digital token issuers. The new guidance outlines how and when a cryptocurrency token may fall within the definition of a security. Many have waited patiently for such “plain English” guidance to be published.
One must remember that SEC guidance is merely that: guidance. It is not law.
That said, the 13-page document is to help token issuers determine whether their coin offering qualifies as a security offering. The guidance outlines a variety of considerations issuers must make when evaluating whether a crypto offering is a security:
- reliance on the efforts of other active participants and how they affect the value of the asset and the operations of the asset’s network;
- the development of the network;
- the correlation between the purchase and market prices of the digital asset;
- reasonable expectation of profits (which may mean a possible reevaluation of digital assets previously sold as securities); and
- other relevant considerations like the purchasing power of the digital asset or its rights to a good or service.
The document also includes examples of tokens and networks that fall under securities laws.
More recently, SEC Chairman Jay Clayton seemed to further indicate the SEC wanted more Main Street investment in private markets. Originally reported by InvestmentNews, in an interview at the U.S. Chamber of Commerce on Tuesday, Clayton acknowledged a lack of opportunity for “retail” investors (such as retirement account holders) in private market investments. In fact, he explicitly acknowledged “problems” with the current accredited investor rule definition.
Over the past year, Chairman Clayton has indicated concern about access to private markets on several occasions. In a December 2018 speech, Clayton questioned whether the accredited investor definition “is appropriately tailored to address both investment opportunity and investor protection concerns.” And a few months earlier, Clayton acknowledged a need for Main Street investors to have more access to private deals. In fact, a focus on Main Street investors has been part of the SEC’s agenda since Clayton’s appointment in 2017.
What does this mean for retail investors?
It’s clear the SEC is considering how to provide more private investment opportunities to non-accredited investors. This means that alternative assets, particularly private lending and private equity funds, could be made more accessible to retirement account investors.
We’re excited to see comments and discussions like this on the topic of alternative assets (“alts”). But no matter how the investment industry continues to evolve in its thinking about alternatives like those mentioned above, Kingdom Trust will be here to facilitate the needs of clients seeking to diversify beyond just stock market-based investments.
Interested in adding assets that may have a low correlation to the traditional markets? If you look to invest in digital assets, private lending, private equity, or any other alt, chat with us today on how to get started on the path to true diversity with a Kingdom Trust account!