U.S. SEC Revises Reporting Format for Investment Advisers, Removes Definition of “Digital Assets”

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Definition of “digital asset” removed in final draft

The U.S. Securities and Exchange Commission (SEC) on the 3rd adopted amendments to the report “Form PF” for specified investment advisers registered with the SEC. The final draft removes the definition of “digital assets,” including crypto assets (virtual currencies).

The SEC included a definition of digital assets in its August 2022 draft, but eventually removed it, stating:

proposed adding “digital assets” as a new term to the Form PF Glossary of Terms.

The SEC and its staff continue to review the term and will not adopt the term “digital asset” as part of this rule at this time.

It is a form that suggests that it is still in the stage of considering whether to adopt the word “digital asset” and its definition. In the August 2022 proposal, the SEC defined “digital assets” as follows.

Assets issued and transmitted using distributed ledgers or blockchain technology, including but not limited to so-called “virtual currencies,” “coins,” and “tokens.”

Had the definition of a digital asset been incorporated as is, it could have been the SEC’s first official statement of the definition of a digital asset.

Form PF is required to be submitted to investment advisory companies that manage private funds (PF) with assets above a certain standard. The purpose is to regularly report to the SEC on the type of assets held, leverage, counterparty credit risk, etc.

This revision of the form was made in response to the scale of private funds and the fact that their ties to the capital market have become stronger than before. The aim is to improve the authority’s ability to assess risks and strengthen oversight and investor protection.

Voices demanding clarification of virtual currency regulations

It is unclear why the definition of digital assets was removed at this time. The SEC is being criticized for arbitrarily cracking down on cryptocurrencies without providing clear guidelines.

In connection with this, the major US cryptocurrency exchange Coinbase submitted to the SEC in 2022 a “petition (signed document) seeking clarification of regulations regarding the cryptocurrency industry.”

However, since then, the SEC has not provided an official response and has sent a notice to Coinbase stating that it plans to take legal action. In response, Coinbase is poised to take the matter to court. It also filed a lawsuit seeking an answer to the petition.

The SEC has taken legal action against cryptocurrency companies, especially for offering “unregistered securities,” but has been criticized for not clarifying in advance what constitutes “securities.”

connection: US Coinbase publishes objection to SEC over unregistered securities issue

connection: Coinbase sues the US Securities and Exchange Commission for “clarification of regulations”

DeFi rule changes

The US SEC is also considering changing rules for stock exchanges. In April, it voted on a proposal to clarify that the rules for traditional stock exchanges can also be applied to DeFi (decentralized finance), and is currently soliciting public comments.

connection: US SEC votes on proposal to apply stock exchange rules to DeFi

What is DeFi (decentralized finance)?

Refers to financial services or systems that utilize blockchain and are performed in the absence of a central administrator. Abbreviation for “Decentralized Finance.” DeFi financial services include stablecoin issuance, currency lending, and cryptocurrency exchanges. Many platforms use the Ethereum blockchain.

Cryptocurrency Glossary