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It may be too late for XRP to be classed as a security. At least that’s the opinion of two independent legal experts who have explained to Crypto Briefing that any regulatory clarity gained would be far outweighed by costs, or even the negative effects it would have on the sector.

Max Rich, deputy counsel at the crowdfunding platform Republic, thought it was unlikely the SEC would compel Ripple Labs, XRP’s creator, to reimburse investors. He believed authorities would crack down on ICO projects believed to have sold unregistered securities. But the XRP token sale, which took place in mid-2013, could be excluded because it happened such a long time beforehand.

Rich says the SEC will use the DAO debacle, in the summer of 2016, as the cut-off point. Projects that hosted a public sale before may be treated differently to those that happened after that date.“I do think the SEC uses the DAO as an inflection point,” Rich said in an email exchange.

Rich thinks earlier public sales, like Ripple, may still be dealt with by the SEC. That said, they may not be the regulator’s immediate focus. “It’s likely they are using limited resources to address offerings where there are i) principals that can be identified, ii) funds can be traced and clawed back and iii) benefits that can be gotten for the public – an enforcement net benefit,” he wrote.

Although this was not a free pass, Rich suggested that Ripple would not be at the top of the regulators’ naughty lists. “[They’re] Basically putting out current fires rather than attending to the charred remains of old fires,” he added.

Meanwhile, Michael Minihan, a tax attorney and partner at BX3 Capital, a blockchain development fund, points out that (like Ether) XRP is highly integrated with the cryptocurrency sector. Echoing Rich’s view that the token has been around for a relatively long time, Minihan also highlighted that its size and influence within crypto would make it difficult to touch. Any changes in its regulatory status will have significant knock-on effects.

“The thing with XRP is it’s almost like a too big to fail, too far along,” Minihan told Crypto Briefing, who went on to explain that the same motivations lay behind the SEC’s decision to not label Ether a security.

“Basically, if you torpedo Ether, you’re going to tank the whole thing,” Minihan said. “You have the ability to tank most of the market by doing that. I think that’s not what they want to do. I think all they’re trying to do is protect investors, and by calling Ether a security, doesn’t protect investors.”

Ripple Labs and XRP

Virtual currencies are still a nascent technology, and regulators are still playing catch-up. One of the key bugbears is whether tokens, especially those sold in public sales, are unregistered securities. Just under a fortnight ago, the SEC instructed two ICO projects to reimburse investors, who said the tokens sold were unregistered securities.

The XRP token – the second biggest by market cap – is the most high-profile. Although the SEC itself hasn’t brought charges against Ripple, two secondary buyers have filed independent complaints, claiming that the company promised financial returns, a key characteristic of a security in US financial law.

Ripple has frequently reiterated that XRP, of which it still owns most of the supply, is an “independent digital asset,” with clear-cut use cases. In other words, they believe it is a utility token, not an investment. Ripple designed XRP to be used as a unit of exchange in xRapid a payments solution designed to facilitate quick, seamless cross-border transaction between banks.

The exact number of banks actively implementing Ripple’s xRapid remains uncertain. But Crypto Briefing found out earlier this year that the National Bank of Kuwait (NBK) would be going live with xCurrent at the end of October. The Bank of England, the UK’s central bank, released a proof-of-concept into the underlying technology in a report published in July 2017. Royal Bank of Scotland (RBS) examined the technology but decided not to continue.

American Express, Credit Suisse, Barclays, and UBS – banks that had all tested xRapid – all declined to comment or, in some cases, never got back to us.

The XRP security debate

Although an SEC director stated publicly that ether was not a security during the summer, they have remained disconcertingly quiet on XRP. But although regulatory uncertainty still surrounds it, the token has been one of the big winners, at least from a market perspective. Its move into second place, ahead of Ether, certainly attracted a lot more investors.

Ripple tried to distance itself from XRP from the summer, but it changed its tack in mid-September. The besuited Brad Garlinghouse – who books former President Bill Clinton for his event – agonizes no longer on the differences between Ripple and XRP; he talks on Bloomberg about how xRapid and XRP are going to beat centralized competitors, like Swift.

This shift suggests Ripple isn’t too worried about the SEC labeling XRP a security. For the time being at least, they’re the sector’s golden boy. It has even beaten Bitcoin (BTC) in a popularity contest, held on Twitter. But outsiders still don’t know exactly how popular XRP is with the banks – the virtual currency’s target market.

The debate on whether XRP is a security may not be the main concern. Financial restrictions may mean the SEC decides to focus on more recent violations, rather than ones that happened more than five years ago. The key concern for the banks is whether XRP actually offers them real utility; a chance to improve international settlement and remittances. If it doesn’t, that could be a problem.

Bigger, perhaps, than being on the wrong side of the Howey Test.

Additional contributions by Andrew Ancheta.

The article had inaccurately identified xRapid for xCurrent. It has been corrected.

The author is invested in BTC and ETH, which are mentioned in this article.