Coinbase Inc., has announced that the U.S. Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINFRA) have approved its purchase of three companies that will help pave the way for the cryptocurrency exchange and wallet service to offer security tokens in the future under federal oversight, pending further steps including regulatory approval to list specific assets. The news was first reported by Bloomberg.
Speaking with the publication, a Coinbase spokesperson said the regulators have approved its it request to acquire Digital Wealth LLC, Venovate Marketplace Inc. and Keystone Capital Corp, acquisitions which CCN reported last month. Venovate and Keystone are both registered with the SEC and FINRA as broker-dealers. Digital Wealth holds an SEC registered investment adviser license, while Venovate is also licensed as an alternative trading system.
The approvals were not reported as of this writing on either the SEC or FINFRA websites.
Achieving direct federal regulatory oversight marks a milestone, as well as a challenge, since Coinbase previously has only been overseen by state regulators.
The company noted in June that SEC oversight will enable it to work as a broker-dealer, a registered investment adviser, and an alternative trading system, widening the range of services it can offer to customers and assets it can list on its platform.
Alternative trading systems, which operate separately from public stock exchanges, could ultimately manage billions of dollars’ worth of tokens sold in ICOs. While some governments, including the U.S. and China, have clamped down on ICOs, these venues have raised in excess of $12 billion this year, more than tripling last year’s total, according to CoinSchedule.
According to the SEC, most coins sold in ICOs are securities under federal regulations, which require the issuers to register and abide by federal rules. The same requirement applies to the platforms that handle the trades of these tokens, which is why Coinbase has been so hesitant to list assets outside of those already offered through its brokerage service.
Coinbase will integrate its technology into the acquired companies, a company spokesperson said, which will necessitate ensuring employees are licensed and requiring the company to divulge onboards and data to customers. The spokesperson gave no timeline.
The news comes as Coinbase is preparing to list as many as five new tokens in the coming months. On Friday, Coinbase announced it is exploring the addition of five more coins: zcash, 0x, stellar, cardano and basic attention token. These coins would be in addition to bitcoin, litecoin, ether and bitcoin cash, which are currently supported on the platform, and ethereum classic, which the firm will add in the coming months.
Coinbase’s interest in the five coins does not signify that the coins are not securities, as some assets may not be available in every country due to legal status.
Jay Clayton, chairman of the SEC, previously stated cryptocurrencies that are designed to replace fiat currencies — such as bitcoin — do not fall under securities laws. There has been a debate, however, about how other cryptocurrencies that are sold in crowdsales should be classified. The SEC also said almost all ICOs qualify as a securites according to federal rules.
The four coins on the Coinbase platform were the only ones Coinbase was confident about supporting, Coinbase COO president and COO Hirji said earlier this year, in consideration of the U.S. regulatory climate. A broker-dealer status will allow the company to list more coins.
Hirji said the licenses will enable Coinbase to achieve its goal become the most trusted venue for people to trade and use different crypto assets.
Last month, Circle Internet Financial Ltd. reported plans to register as a trading platform and brokerage with the SEC in order to allow investors to trade tokens that are classified as securities. Circle further intends to secure a federal banking license so it can offer additional services.
Update 7/17: The headline and body of this article have been updated slightly to reflect that while the acquisition approvals remove another roadblock to listing security tokens, the company must undergo other steps before adding support for these assets.
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Last modified: July 17, 2018 22:27 UTC