The US Securities and Exchange Commission has proposed a new regulatory framework that could make it easier for crypto companies to issue tokens and raise capital without going through the full securities registration process.
Announced on Aug. 18, the proposal, called “Regulation Crypto Assets,” introduces two offering exemptions and a conditional safe harbor for certain crypto assets. The move comes as Congress struggles to advance the Digital Asset Market CLARITY Act, leaving regulators to address some of the industry’s longstanding legal uncertainty.
Key Takeaways
- The SEC has proposed two exemptions allowing qualifying crypto issuers to raise up to $5 million over four years or $75 million within a 12 month period.
- Certain crypto assets could qualify for a safe harbor that prevents them from being treated as investment contracts once specified conditions are satisfied.
- Issuers would still face disclosure requirements, with larger offerings subject to financial statements and ongoing reporting.
- The proposal is separate from the previously discussed “innovation exemption” involving tokenized securities.
- The public will have 60 days to comment after the proposal is published in the Federal Register.
- The SEC continues to argue that congressional legislation remains necessary for a durable US crypto regulatory framework.
SEC Creates New Paths for Crypto Fundraising
The proposal builds on interpretive guidance issued by the SEC earlier this year and is designed specifically for certain investment contracts involving crypto assets. Under the first exemption, an issuer could conduct a one time offering of up to $5 million during a four year period without registering the offering under the Securities Act of 1933.
A second exemption would permit qualifying issuers to raise as much as $75 million during any 12 month period.
Both routes would require companies to provide investors with certain principles based disclosures. Issuers using the $75 million exemption would face additional obligations, including providing financial statements and meeting ongoing reporting requirements.
SEC Chair Paul Atkins said the regulator wants to provide clearer fundraising options while Congress continues working on broader legislation.
“Regulation Crypto Assets seeks to provide crypto asset entrepreneurs and market participants with clear pathways to raise capital under the federal securities laws.”
The proposal could reduce regulatory barriers that crypto companies have long argued encourage businesses to establish operations outside the United States.
Industry groups responded positively. Blockchain Association CEO Summer Mersinger described the proposal as an important move toward the tailored rules US digital asset markets have sought for years.
Safe Harbor Could Clarify a Token’s Securities Status
Another significant part of the proposal is a conditional safe harbor addressing when a crypto asset should no longer be considered subject to an investment contract. Under the SEC’s proposal, a crypto asset could qualify for the safe harbor after an issuer has completed or permanently stopped the essential managerial efforts it represented or promised it would perform, provided the other conditions are met.
That distinction could provide issuers with a clearer route for tokens initially distributed through investment contracts to eventually exist outside that classification. The proposed rules would also preempt certain state securities registration requirements for qualifying offerings and some secondary market transactions.
However, the package does not contain the anticipated “innovation exemption” for tokenized securities. That remains separate from the Regulation Crypto Assets proposal.
SEC Moves as Clarity Act Remains Stuck in Senate
The timing places the SEC’s rulemaking alongside Congress’ stalled attempt to establish a comprehensive digital asset market structure. The CLARITY Act is intended to establish clearer federal oversight of crypto markets, including the respective responsibilities of the SEC and Commodity Futures Trading Commission.
Senate Majority Leader John Thune filed a cloture motion before lawmakers left Washington for the August recess, setting up another opportunity to advance the legislation when the Senate returns in September. The congressional calendar, however, leaves lawmakers with a narrow window before attention shifts toward the November elections.
Atkins acknowledged that SEC rulemaking cannot fully replace legislation passed by Congress.
“Legislation remains indispensable to enacting ‘future proofed’ rules of the road that are durable enough to protect the work we are undertaking today from being unwound by a future rogue regulator.”
The CFTC is also considering regulatory action that could complement future congressional legislation, adding another layer to the federal government’s push to establish clearer crypto rules.
Conclusion
The SEC’s Regulation Crypto Assets proposal could give US crypto companies more defined routes for issuing tokens and raising capital while providing a possible pathway for certain assets to move outside investment contract treatment. Still, the proposal is not final. A 60 day public comment period will begin after publication in the Federal Register, and the SEC could modify the rules before adoption.
More importantly, the agency’s action does not resolve the wider question of federal crypto market structure. Unless Congress advances the CLARITY Act or similar legislation, much of the US framework will continue to depend on regulatory actions that a future administration could potentially revisit.
