Some of the biggest crypto exchanges in the US have developed a system that rates cryptocurrencies on how likely it is to be a security, with the potential of being delisted if they come out badly. Exchanges including Coinbase, Kraken, Circle, and Bittrex have joined forces to form the Crypto Ratings Council, who seem to have become fed up with the lack of definitive action by regulators and have taken matters into their own hands in an attempt to lay down some kind of ground rules to work from.
Founded by prominent companies across the crypto industry, our mission is to lead crypto financial services firms committed to practical compliance with the U.S. securities laws. We are the Crypto Rating Council, and we launched today: https://t.co/FbdwfSZN9D
— Crypto Rating Council (@CRC_Crypto) September 30, 2019
Coinbase Loses Patience with SEC
Coinbase seem to have been the driving force behind the Council, announcing on Monday that they sought expertise from the legal representatives from the invited exchanges to try and form a mechanism for doing the Securities and Exchange Commission’s (SEC) job for them and determining a framework for determining crypto securities. In a blog post detailing the move, Coinbase notes that current analysis on the matter is “difficult and expensive to operationalize consistently, may involve judgment calls, and can lead to disagreement among legal experts (and even government officials).” This prompted them to “bring together several industry leaders and securities law experts to create a scalable, points-based rating system” which, although it has no teeth in a legal sense, will nevertheless offer some kind of guidance for exchanges in lieu of an actual legal framework. The forming of such a council is in contrast to the efforts of Kin Foundation founder Ted Livingston, who is using KIN’s legal entanglement with the SEC to try and determine a similar ruling but in a more binding sense.
SEC Guidance Used for Ratings
Coinbase says that the questions used for determining each token’s rating “are derived directly from SEC guidance and case law and are designed to address important characteristics that inform whether an asset is or is not a security.” The opinions of outside legal experts will also be sought for an objective point of view, before the final score is published on a 1-5 scale, with 5 being rated as having characteristics “strongly consistent” with those of a security. This score may have an impact on the likelihood of being listed (or delisted) by each constituent exchange, although this is down to individual members. It would be a surprise if any tokens already listed on multiple member exchanges will be given a 5 rating, but crypto loves a bit of drama, so here’s hoping.