Washington's Risk Capital Test and PBS/MPS
Why Washington's risk capital framework became relevant during regulatory examination of Provenance-Backed Securities and why the issue matters to the larger legislative discussion.
Public Information Boundary
ScarabCloud prepared a detailed Washington-specific analysis addressing PBS/MPS under RCW 21.20.005(17)(a) as part of its regulatory engagement.
The underlying regulatory submission was prepared for regulatory review and requested confidential treatment. Meritocrat.org therefore does not publish or summarize portions of that analysis that ScarabCloud considers confidential, legally sensitive, proprietary, or relevant to future regulatory and compliance work.
This public page is intentionally limited to information necessary to explain the regulatory history and its relevance to Washington's legislative discussion.
Why does Washington's risk capital test matter to PBS/MPS?
ScarabCloud's initial regulatory materials included an analysis of PBS under the federal Howey framework.
During ScarabCloud's engagement with the Washington State Department of Financial Institutions (DFI), DFI explained that a securities analysis in Washington should also include review of the risk capital test.
ScarabCloud subsequently provided a Washington-specific analysis. DFI later acknowledged that ScarabCloud had examined both the Howey test and Washington's risk capital test.
This is important because analysis of a proposed financial instrument in Washington is not necessarily limited to the federal Howey framework.
What question did ScarabCloud analyze?
ScarabCloud prepared an analysis addressing PBS/MPS under RCW 21.20.005(17)(a) as part of its Washington regulatory engagement.
The purpose of that work was to examine how Washington's securities framework could apply to the proposed architecture in addition to the federal securities-law analysis already performed.
Did DFI determine whether PBS is a security?
DFI acknowledged ScarabCloud's examination of the federal Howey test and Washington's risk capital test.
In the correspondence published as part of Meritocrat.org's regulatory history, DFI did not provide ScarabCloud with a regulatory pathway for bringing PBS to market.
DFI stated that the appropriate pathway would need to be determined by the company, ideally after consultation with legal counsel.
Meritocrat.org therefore does not characterize DFI's correspondence as an approval, endorsement, or classification ruling.
Does the risk-capital analysis mean PBS is outside securities regulation?
No such conclusion should be drawn from this public record.
DFI stated that, to the extent the PBS/MPS architecture involves the offer or sale of securities, existing requirements under state and federal securities laws would apply.
DFI specifically identified registration requirements and potential broker-dealer or investment-adviser licensing requirements among the issues that could apply.
DFI also emphasized that securities laws serve investor-protection purposes.
ScarabCloud's regulatory work is therefore presented here as an effort to identify relevant legal questions, not as an argument for avoiding investor protection or securities regulation.
Why does this matter to Washington legislators?
DFI identified a broader jurisdictional issue beyond securities classification.
DFI stated that the PBS/MPS architecture contemplated in ScarabCloud's materials appeared to extend beyond the securities laws and other laws administered by DFI and could raise legal issues including property rights and intellectual property.
“To implement the envisioned architecture would most certainly require legislative action touching different areas of the law.”
That distinction is central to the proposed Washington legislative discussion.
PBS/MPS presents questions involving more than the classification of a particular financial instrument. The broader proposal also raises questions about provenance, intangible contribution, property rights, intellectual property, investor protection, and the legal infrastructure surrounding emerging economic interests.
What is ScarabCloud's policy conclusion?
ScarabCloud believes that the interaction among securities law, provenance, property rights, intellectual property, and emerging intangible-asset infrastructure warrants legislative examination.
That conclusion belongs to ScarabCloud.
DFI has not endorsed PBS/MPS, ScarabCloud Inc., SeedBid™, Meritocrat.org, or the proposed Washington Provenance-Backed Securities Act.
DFI expressly states that it cannot provide legal or financial advice and does not endorse or recommend any person, product, or institution.
Why isn't the complete analysis published?
ScarabCloud prepared a detailed Washington-specific analysis addressing PBS/MPS under RCW 21.20.005(17)(a) as part of its regulatory engagement.
The underlying regulatory submission was prepared for regulatory review and requested confidential treatment.
Meritocrat.org therefore does not publish or summarize portions of that analysis that ScarabCloud considers confidential, legally sensitive, proprietary, or relevant to future regulatory and compliance work.
This public page is intentionally limited to information necessary to explain the regulatory history and its relevance to Washington's legislative discussion.
Three records that should remain distinct
1. ScarabCloud's analysis
ScarabCloud prepared its own legal and regulatory analysis addressing PBS/MPS under relevant securities frameworks.
2. DFI's response
DFI identified regulatory considerations, explained the limits of its administrative authority, acknowledged ScarabCloud's review of Howey and the risk capital test, and recommended consultation with legal counsel.
3. The legislative proposal
The proposed Washington Provenance-Backed Securities Act is ScarabCloud's policy proposal.
No implied endorsement
The proposed legislation should not be represented as legislation authored, approved, or endorsed by DFI.
Related PBS/MPS resources
Legal and Regulatory Notice
This page is provided for public-policy and educational purposes. It does not constitute legal, investment, securities, tax, or financial advice.
Nothing on this page represents a determination by the Washington State Department of Financial Institutions, the U.S. Securities and Exchange Commission, a court, or any other regulatory authority regarding the classification or legality of PBS/MPS.
No securities are offered or solicited through this page.