A new set of U.S. rule proposals for the crypto sector would provide a couple of new exemptions and a safe harbour that would shelter new crypto offerings from traditional securities rules.
The U.S. Securities and Exchange Commission (SEC) is proposing a set of carve-outs from the securities regime for crypto issuers, including a pair of registration exemptions and a provision that would prevent crypto assets from being captured by the “investment contract” definition in the existing rules.
Under one of the proposed exemptions, the “startup exemption,” crypto offerings would be able to raise up to US$5 million over a four-year period without being registered, subject to certain principles-based disclosure requirements.
A second exemption, known as the “fundraising exemption,” would allow for larger offerings of up to US$75 million in a 12-month period. These kinds of ventures would require more detailed disclosure, including a requirement to provide financial statements, coupled with some ongoing disclosure requirements.
This exemption would allow issuers to raise US$20 million without having their financials audited, but US$75 million offerings would require audited financials.
Additionally, the SEC is proposing a conditional safe harbour that would enable crypto assets that meet the conditions to avoid being classified as “investment contracts,” which could capture offerings under securities rules too. The provision is intended to cover issuers that have completed, or abandoned, the managerial efforts promised to investors.
The proposals also include a provision to preempt state securities law registration requirements for offerings that fall under the new federal regime.
The SEC said that the proposals follow guidance issued earlier this year that sought to more clearly set out when crypto offerings are captured by securities rules — and prescribe how these offerings can avoid rules designed for the traditional securities market.
In addition to improving regulatory clarity for the crypto sector, the SEC said that the new rules aim to reduce the incentives for issuers to engage in their activities offshore.
“As we continue the commission’s efforts to provide clarity for crypto markets, and as Congress works to establish a lasting regulatory framework, Regulation Crypto Assets seeks to provide crypto asset entrepreneurs and market participants with clear pathways to raise capital under the federal securities laws,” said SEC chairman, Paul Atkins, in a release.
The proposals will be out for a 60-day comment period after they are published in the Federal Register.