US Exchanges Create ‘Crypto Rating Council’ to Asses Tokens

Eight major crypto players, led by , have formed a framework that is intended to give market participants guidance as to whether any crypto asset is more or less likely to be classified as a security.
Dubbed the ‘Crypto Rating Council (CRC),’ the initiative marks an expansion of self-scrutiny into crypto companies involved with digital coins or tokens that have characteristics make it fall under the .

In addition to five major crypto exchanges – Coinbase, Bittrex, Circle, Genesis and Kraken – founding members of the CRC council include digital asset custodian Anchorage, DRW Cumberland and Grayscale Investments.
“The important question of whether any given digital asset is a security—as opposed to a commodity, a currency, or something else—informs critical licensing, registration, and operating obligations for financial services firms that support cryptocurrency,” they said in a statement.
Howey tests
More specifically, the CRC will publish a simple rating for assets it reviews to indicate the results of its analysis as a reference for operators and the public. The process involves a points-based weighting that scales into a rating between 1 and 5.
For example. a score of 5 results means the asset appears to have many securities characteristics as defined by the federal laws. In this case, the operator should consider register with the SEC as a a broker dealer, securities exchange or seek exemption from registration. The statement also provides a summary of the circumstances under which the digital asset is less likely to meet the .
Coinbase explains that they shared their methodology with the SEC and “other interested regulators and government officials.” However, none of the SEC, the CFTC or any other regulator have endorsed the methodology or its resulted ratings.
Current views on whether tends to follow the “Howey Test,” which determines if an asset considered a security or a transaction represents an investment contract depending on three elements. First, the investment product can be exchanged for value. Second, the investment involves some element of risk, and third, it must be tradable.