The SEC's Division of Corporation Finance added three entries to its crypto FAQ on shared governance, control over network access, and functionality. The staff says governance participation alone does not automatically create a controlling group. The FAQ carries no legal force, drawing attention to the distinction between guidance and legislation.
The U.S. Securities and Exchange Commission's Division of Corporation Finance added questions 1.4 through 1.6 to its crypto FAQ on Nov. 2. The answers expand on the agency's March interpretation of federal securities laws and address when governance participants count as a central party.
Miles Jennings welcomed the update, saying it clarifies how systems can keep decentralized governance while using legal entities such as DUNAs. However, the FAQ itself does not name DUNAs or approve any particular organization.
Shared governance does not automatically mean control
Question 1.4 asks whether people who take part in a system's governance form a group under the interpretation's central-party definition. According to the staff, participants generally will not be considered such a group if they are unaffiliated and have no separate agreement or understanding to act together outside governance.
The same approach applies when governance sits within an organization, association or foundation and depends on holding the system's native token. Even where participants qualify as a group, they must still hold operational, economic or voting control to meet the definition.
Unilateral access powers can establish central oversight
Question 1.5 covers what it means for a central party to oversee participation. The staff lists examples including granting or limiting access, changing voting procedures, deciding who validates transactions, modifying code, and reversing transactions or revoking access.
By contrast, the answer describes material operations that run automatically through rules-based code without anyone exercising discretion. Where discretion remains, it can be exercised solely through the system's governance process, provided the participants do not themselves constitute a central party.
Functionality and decentralization answer different questions
In question 1.6, the division separates whether a token works as intended from whether anyone controls the network. A system is functional when its native asset can be used in accordance with its programmed utility, while decentralization concerns autonomous operation without a person, entity or coordinated group holding control.
The FAQ is not law
Avi Lev pointed out that an FAQ is not law and argued that a future SEC could rewrite it. The FAQ expressly represents staff views, carries no legal force and creates no new obligations, and the Commission has neither approved nor disapproved its contents.
Journalist Eleanor Terrett described the additions as an effort to answer some decentralization questions the CLARITY Act would address in law.
Source: crypto.news
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