SEC Chair Jay Clayton urged securities lawyers and other market professionals to act responsibly when dealing with Initial Coin Offerings ("ICOs") and discussed completion of remaining Dodd-Frank rulemaking mandates.
In a speech before the Securities Regulation Institute, Chair Clayton issued a warning to lawyers who assist promoters in structuring ICOs to comply with securities laws. According to Chair Clayton, the SEC has seen multiple situations where a lawyer knows or should know that an ICO bears securities hallmarks but either claims that they are not securities, or steps back from advising on the issue to allow his/her client to decide to take the risk. With respect to either scenario, Chair Clayton instructed SEC staff to remain "on high alert for approaches to ICOs" that are not in line with the "spirit of our securities laws and the professional obligations of the U.S. securities bar." Chair Clayton also warned companies that adopt blockchain-related names, or pivot to blockchain-related activities in order to capitalize on the attention surrounding blockchain, to fulfill disclosure obligations. He cautioned that the SEC is "looking closely" at such activities.
In addition, Chair Clayton offered ways the SEC should proceed with Dodd-Frank rulemaking in four specific categories. Chair Clayton recommended a "holistic" approach toward the finalization of the remaining Title VII regulations for security-based swaps. Acknowledging that SEC and CFTC security-based swaps rules differ significantly, he said that the SEC will seek to harmonize its final rules with the CFTC in order to "increase effectiveness as well as reduce complexity and costs."
On executive compensation rules for public companies and SEC-regulated entities, Chair Clayton recommended a "serial" approach due to the complex nature of developing appropriate rules in this area. On specialized disclosure rules, Chair Clayton said he instructed staff to craft rules for consideration by the Commission that take into account "procedural and substantive constraints" and divergent viewpoints on such matters as resource extraction disclosure. Concerning specialized regulatory mandates such as compensation clawbacks, Chair Clayton recommended that rulemaking priorities should reflect when they have been overtaken by market developments.
Chair Clayton also said that the SEC is committed to completing Dodd-Frank rulemaking mandates, but will need to be "flexible in timing, in sequence, and in content, because there are many factors beyond [its] control that can dictate how to apply the agency's limited resources."
Commentary / JEFF ROBINS
Under prior leadership, the SEC developed a plan for adopting Title VII rules that called for a series of specific rules to be adopted before the set was made effective as a whole and before security-based swap dealers were required to register. Most of those rules have been adopted, though a significant few remain to be finalized. Chair Clayton's commentary on these Title VII rules signals that the SEC will revisit the rules previously adopted. It also indicates that the SEC will consider issues of harmonization prior to finalizing the remaining rules. This is consistent with the SEC's recent update to its near-term regulatory agenda, which is largely silent on Title VII rulemaking.
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