SEC proposes new crypto offering rules as Congress stalls on digital asset legislation

The U.S. Securities and Exchange Commission proposed a new rule that seeks to offer a pathway for investments involving digital assets that would exempt certain offerings from adhering to securities law as broader legislation stalls in Washington.

On Tuesday, the SEC put forth "Regulation Crypto Assets," which it says would be a "tailored offering regime" designed to help raise capital while protecting investors. This is separate from an innovation exemption.

"Congress designed our securities laws to amplify – within specific guardrails – opportunities for entrepreneurs to innovate and build new products," said SEC Chair Paul Atkins in a statement. "Advancing this regulatory framework is a key element in our strategy to advance the rule books for the modern era and another step by the Commission to onshore innovation in crypto asset markets for generations to come."

Reg Crypto builds on guidance released in March by both the SEC and its sister agency, the Commodity Futures Trading Commission, that clarified how federal securities laws apply to digital assets and transactions, stating that most of those assets were not securities. This is separate from an innovation exemption focused on tokenized assets.

The latest proposed rules would allow a "startup exemption" that would exempt offerings of up to $5 million from registration rules under the Securities Act of 1933 for four years — a federal law focused on anti-fraud and requiring certain disclosures. The proposal also includes a "fundraising exemption" for offerings up to $75 million for a year.

The proposal also includes a safe harbor that would allow a digital asset to no longer be a security if certain conditions are met and it has "ceased all managerial efforts." 

This comes just days after the SEC was scheduled to hold a meeting on Friday to propose this rule, but it was canceled last minute due to an "unforeseen scheduling issue," an SEC spokesperson told The Block last week.

Clarity Act stalling out

The SEC's move to propose rulemaking comes as lawmakers in Washington have stalled out in passing sweeping legislation to regulate digital assets for the first time comprehensively at the federal level.

The bill, called the Clarity Act, has hit one hurdle after another, from fights between crypto and banks on stablecoin rewards to addressing President Donald Trump's conflicts of interest. A procedural vote is scheduled for mid-September, but timing is tight as attention swiftly turns to November elections.

During a SALT conference panel earlier Tuesday, White House top crypto adviser Patrick Witt alluded to imminent rulemaking coming out of the CFTC and SEC.

"There is a robust set of rulemaking that will go out — we're giving every opportunity for the Senate and for Congress to pass the bill before we ultimately break glass and move in that direction," Witt said. "We can't wait forever as we know, and we've got the window in September here and if ultimately it doesn't succeed, they're going to let loose."

The proposal is just one step of many, said Hester Peirce, one of the SEC's three commissioners — all of whom are Republican.

"This proposal is one step on a long road toward a clear, sensible, enforceable regulatory framework for crypto," she said in a statement.

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