US securities regulator proposes crypto fundraising rules: What changes now

The proposed rule seeks to create routes for eligible crypto issuers to raise capital and clarify when an investment contract linked to a non-security crypto asset ceases to exist

The US Securities and Exchange Commission (SEC) on Tuesday proposed a new framework for crypto assets, with exemptions focused at making it easier for eligible issuers to raise capital. The proposal includes separate limits for startups and larger fundraising rounds, along with a ‘safe harbour’ for certain crypto assets linked to investment contracts.

 

The proposal, called Regulation Crypto Assets, is part of SEC Chairman Paul Atkins’ push for a “fit-for-purpose framework” for the crypto asset market. The SEC said existing securities rules were not designed for the asset class.

What has the SEC proposed?

The proposed framework includes different set of exemptions.

 

The first is a “startup exemption”, which would allow offerings of up to $5 million over four years.

 

The second is a “fundraising exemption”, which would allow offerings of up to $75 million each year.

 

Both exemptions would have disclosure requirements tailored to crypto assets. The fundraising exemption would also require disclosures on the issuer’s financial condition, including audited financial statements at certain capital-raising thresholds, according to the SEC.

 

The SEC said the exemptions are intended for non-security crypto assets that are subject to an investment contract. The proposal also includes conditions focused on preserving investor protections.

Why is the safe harbour important?

The proposal also includes an “investment contract safe harbor”.

 

Under the proposed mechanism, an issuer could certify to the SEC that it had stopped or ended all essential managerial efforts it had promised to undertake under the investment contract. If other conditions are met, the SEC would no longer treat the non-security crypto asset as being subject to that investment contract and, consequently, would no longer exercise authority over it.

 

The proposal is intended to provide greater clarity to issuers, investors and other market participants on when the investment contract associated with a crypto asset ceases to exist.

Why does the SEC say the rules are needed?

The SEC said issuers of non-security crypto assets subject to investment contracts have had to comply with existing securities rules that were not designed for such assets.

 

Atkins described this as a “square peg in a round hole” approach, adding it had created complications and impeded capital formation and innovation in crypto markets. He also said the approach had driven investment offshore.

 

The new proposal would instead create what the SEC calls a “fit-for-purpose framework” for these crypto assets.

 

Atkins said the SEC was seeking “minimum effective dose, maximum freedom to build, and durable clarity under existing law”, while keeping investor protection central. 

How is this different from the US crypto Bill?

The SEC proposal comes as the US is also working on broader crypto legislation.

 

The Digital Asset Market Clarity Act, which seeks to establish a wider regulatory framework for digital commodities and define the respective roles of the SEC and Commodity Futures Trading Commission (CFTC), also covers digital-asset intermediaries and the classification and treatment of different types of digital assets.

 

The new SEC proposal is narrower. It deals specifically with exemptions for certain crypto offerings and a safe harbour linked to investment contracts.

 

Atkins also said legislation remains necessary and that the SEC would continue to support Congress in passing the CLARITY Act.

India on crypto regulations

India continues to examine a broader regulatory framework for virtual digital assets (VDAs).

 

India currently taxes VDAs and has brought crypto-related entities under anti-money laundering rules. However, there is no comprehensive statutory framework governing their issuance, trading, market intermediaries and investor protection.

 

A parliamentary panel has recommended that the government examine an appropriate statutory and regulatory framework for VDAs. Pending such legislation, it suggested an interim mechanism involving recognised self-regulatory organisations under the oversight of a designated regulator.

 

The SEC proposal therefore adds another element to the US regulatory approach: defined routes for eligible crypto issuers to raise capital and a proposed mechanism for determining when an investment contract linked to a non-security crypto asset ceases to exist.

 

The proposal is not a final rule. It is part of the SEC’s ongoing effort to develop crypto-specific rules while Congress considers broader market-structure legislation.