SEC and CFTC release updates on common questions about cryptocurrency: token buybacks and network upgrades do not necessarily constitute securities, CFTC allows on-chain record retention

On September 25, the U.S. Securities and Exchange Commission's Division of Corporation Finance released an updated FAQ, clarifying that token buybacks, network upgrades, and marketing statements do not automatically make crypto assets securities. SEC staff noted that announcing a buyback plan for an already operational crypto network does not, by itself, make the related tokens investment contracts; however, if the network is not yet operational and the issuer promotes the buyback as a source of returns for holders, it may be a different case.

The FAQ also clarified that once a crypto system is operational, services provided to secure, maintain, improve, or enhance that system or its functions, or to promote network effects, do not constitute managerial efforts under the Howey test. The existing uses of marketing networks typically do not create profit expectations, nor do statements about future functionalities, provided that they do not promote profit potential. The update reiterated that conclusions will still heavily depend on specific cases and are based on the SEC's interpretive release regarding the applicability of securities laws to crypto assets published in March of this year.

On the same day, the Commodity Futures Trading Commission updated its crypto FAQ, allowing futures firms and clearinghouses to invest customer funds in tokenized versions of previously permitted assets, provided they meet investment and custody requirements. CFTC staff also stated that regulated companies may use blockchain for record-keeping but must be able to provide records even when the blockchain or its block explorer is not operational. As these two updates were released, the CLARITY Act failed to advance in the Senate, and regulators are continuing to push forward the crypto regulatory framework based on existing laws.