Key Takeaways
- • NASAA urged the SEC to withdraw its proposed "Regulation Crypto Assets," calling it "preferential regulation in favor of crypto," in a letter submitted on the final day of the 60-day comment period.
- • NASAA President Elizabeth Bowling, who is also assistant commissioner, securities at the Tennessee Department of Commerce and Insurance, argued the rule would strip disclosure, filing and resale protections for retail investors.
- • The proposal includes a one-time exemption for offerings up to $5 million over four years and a second exemption for offerings up to $75 million every 12 months, both subject to principles-based narrative disclosures.
- • The rule would grant issuers safe harbor from the "investment contract" definition once essential managerial efforts have ended, a change that could shift such assets toward CFTC jurisdiction.
- • The SEC proposal, unveiled in mid-August, drew support from Coinbase, Ripple and SkyBridge founder Anthony Scaramucci, and opposition from Better Markets and state officials.
Summary
State securities regulators have called on the Securities and Exchange Commission to withdraw its proposed regulation for certain crypto issuer exemptions, describing the rule as "preferential regulation in favor of crypto." According to Wealth Management, the North American Securities Administrators Association (NASAA) submitted its comment letter on the closing day of the 60-day comment period for "Regulation Crypto Assets," which the SEC unveiled in mid-August.
SEC Chair Paul Atkins has said the rule would "provide crypto asset entrepreneurs and market participants with clear pathways to raise capital under the federal securities laws." NASAA President Elizabeth Bowling argued the proposal would put "the commission's thumb on the scale" to overcome weaknesses common to crypto offerings in order to facilitate sales to retail investors. She wrote that the proposal would "strip away disclosure requirements, filing requirements and resale restrictions without due regard to the adverse impact on retail investors."
The proposed rules include startup exemptions from several Securities Act registration requirements: a one-time exemption for offerings of up to $5 million over four years, and a second exemption permitting offerings of up to $75 million in every 12 months. Issuers would be required to provide "certain principles-based narrative disclosures" under both, and issuers using the second exemption would also need to provide additional financial statements. The rule would further grant issuers safe harbor from the "investment contract" definition once they have "completed or otherwise permanently ceased all essential managerial efforts" under the covered contract, which could make it easier for such digital assets to fall under Commodity Futures Trading Commission jurisdiction, per the rule's fact sheet.
NASAA objected that principles-based disclosures could allow issuers to "replace material information with marketing." Regulators also worried the investment contract exemption would permit "immediate resale" of covered securities, and Bowling warned an issuer could claim it had ended managerial efforts whether it "has met its promises or because it has failed to meet them." Her letter also cited a hypothetical in which a party could combine the startup exemption with a copied whitepaper to raise funds and then abandon development.
NASAA's letter was one of many filed in the closing days of the comment period. Critics included Better Markets, New York Attorney General Letitia James and Massachusetts Secretary of the Commonwealth William Galvin. Supporters included Coinbase, Ripple and Anthony Scaramucci, founder of SkyBridge Capital, who argued the proposals extend investor protection to an asset class that millions of Americans hold. The proposal was released about a month before the CLARITY Act, Congress's digital asset market structure bill, failed in the Senate. Following that failure, the SEC proposed changes to crypto custody, including allowing RIAs to self-custody clients' crypto assets under certain conditions.
SEC Chair Paul Atkins has said the rule would "provide crypto asset entrepreneurs and market participants with clear pathways to raise capital under the federal securities laws." NASAA President Elizabeth Bowling argued the proposal would put "the commission's thumb on the scale" to overcome weaknesses common to crypto offerings in order to facilitate sales to retail investors. She wrote that the proposal would "strip away disclosure requirements, filing requirements and resale restrictions without due regard to the adverse impact on retail investors."
The proposed rules include startup exemptions from several Securities Act registration requirements: a one-time exemption for offerings of up to $5 million over four years, and a second exemption permitting offerings of up to $75 million in every 12 months. Issuers would be required to provide "certain principles-based narrative disclosures" under both, and issuers using the second exemption would also need to provide additional financial statements. The rule would further grant issuers safe harbor from the "investment contract" definition once they have "completed or otherwise permanently ceased all essential managerial efforts" under the covered contract, which could make it easier for such digital assets to fall under Commodity Futures Trading Commission jurisdiction, per the rule's fact sheet.
NASAA objected that principles-based disclosures could allow issuers to "replace material information with marketing." Regulators also worried the investment contract exemption would permit "immediate resale" of covered securities, and Bowling warned an issuer could claim it had ended managerial efforts whether it "has met its promises or because it has failed to meet them." Her letter also cited a hypothetical in which a party could combine the startup exemption with a copied whitepaper to raise funds and then abandon development.
NASAA's letter was one of many filed in the closing days of the comment period. Critics included Better Markets, New York Attorney General Letitia James and Massachusetts Secretary of the Commonwealth William Galvin. Supporters included Coinbase, Ripple and Anthony Scaramucci, founder of SkyBridge Capital, who argued the proposals extend investor protection to an asset class that millions of Americans hold. The proposal was released about a month before the CLARITY Act, Congress's digital asset market structure bill, failed in the Senate. Following that failure, the SEC proposed changes to crypto custody, including allowing RIAs to self-custody clients' crypto assets under certain conditions.
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