SEC Staff Tightens Token Buyback Rules with 'No Central Party' Requirement
SEC updates guidance on crypto token buybacks
The staff of the U.S. Securities and Exchange Commission (SEC) amended its Frequently Asked Questions document on September 28. The update adds a new condition to previous guidance regarding token buyback programs.
The revision specifies that an issuer's announcement of a buyback for a non-security crypto asset will not be seen as a promise of management efforts only if two conditions are met. The system must be functional, and it must have no central party in control.
Changes to the FAQ text
- The original answer released on September 25 focused only on whether a system was functional.
- The revised text explicitly adds "and has no central party" as a required condition.
- This change addresses the element of managerial effort in investment contract analysis.
- The update clarifies that projects with centralized control cannot rely solely on system functionality to fit this guidance.
What the SEC staff clarified
According to the Division of Corporation Finance, the new wording limits the assurance provided in Question 2.5 of the FAQ. The staff stated that if both conditions—functionality and lack of a central party—are present, a buyback announcement does not constitute a representation of essential managerial efforts.
The SEC defines a central party as a person, entity, or group holding operational, economic, or voting control over a crypto system. This definition comes from a March interpretation. The FAQ notes that these documents represent nonbinding staff views and do not carry the force of law or change existing regulations.
Reaction from industry figures
SEC Commissioner Hester Peirce had previously signaled this narrower interpretation. On September 25, she posted on X that issuers with a central party could not rely on the initial FAQ.
Miles Jennings, head of policy at a16z crypto, initially disagreed with Peirce, arguing the limitation was not explicit in the buyback section at that time. However, following the September 28 amendment, Jennings welcomed the change. He stated that the clarification would strengthen the FAQ's durability and prevent attempts to misuse it to bypass securities laws.
Remaining warnings for issuers
The FAQ retains its warning for systems that are not fully functional. If an issuer presents a buyback program as a way to create yield or returns for token holders in such cases, the announcement could still be viewed as a promise of essential managerial efforts.
Source
Newisty Editorial Team covers technology, cryptocurrency, digital products, online platforms, developer tools and the wider digital economy. Our content is researched from official sources, company announcements, public documentation, market data and other primary or reputable sources. Articles are reviewed and edited before publication for clarity, accuracy and useful context.
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