US regulators are catching-up
Last night’s statement from the SEC is another in a line of sequentially increasing announcements from US regulatory and tax authorities showing that after several years of a wait-and-see posture, the US is now moving to catch-up enforcement of activities in the virtual marketplace.
SEC statement of 7 March 2018 regarding virtual exchanges
The SEC’s Divisions of Enforcement and Trading and Markets has issued a statement stating that online trading platforms trading virtual assets that qualify as securities under US securities law must either (1) register with the SEC as an exchange and meet the regulatory requirements of such status, or (2) qualify for an explicit exemption.
The statement addresses parties other than exchanges
Platforms that offer digital wallet services may also need to register with the SEC and meet the regulatory requirements of such status. Finally, other market participants such as promoters, broker-dealers, transfer agents, and clearing agencies may also have a registration requirement.
Coming enforcement efforts
Although not expressly mentioned in the statement, this is another step in the SEC and other US regulatory and tax authorities signalling that they intend to regulate the virtual assets world as aggressively as they do the traditional financial one. The statement of 8 March comes on the heels of highly publicized enforcement actions by the SEC and the launch of investigations by the IRS. This activity will only increase from now on.
What the statement does not explain is when an online activity falls under the jurisdiction of the SEC as a geographical matter (as opposed to purely a question of subject matter jurisdiction). Exceptions are provided for under US law and the SEC regulations for parties that are not US Persons. Here, unlike under the US tax system, US Persons are usually limited to people or entities present in the US (there are a few exemptions to this rule). The SEC has not expressly stated that this general physical presence principle also applies to virtual currency activities, so any forthcoming US regulations could prove challenging in navigating what crypto activity does and does not fall under US jurisdiction.
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US Lawyer & Senior Manager, Financial Services Tax
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