U.S. SEC proposes first major crypto rule in surprise announcement

The U.S. Securities and Exchange Commission has made its first major foray into crypto regulation, issuing a proposed rule meant to clear a path for offering crypto securities without triggering certain regulatory demands.

The agency action on Tuesday is an opening step to establish "Regulation Crypto Assets" as a first permanent rule governing digital assets — a particularly meaningful development after Congress has so far fallen short in passing a crypto market structure law. The issuance had been unexpected after the agency had cancelled an August 14 meeting meant to propose the same rule.

The proposal includes two tracks for crypto securities offerings — a one-time offering of up to $5 million in a four-year period, and another that contemplates offerings of up to $75 million in each one-year period.

"Under both exemptions, issuers would be required to make certain principles-based narrative disclosures available to their investors. In addition, issuers under the second exemption would be required to provide financial statements and be subject to ongoing reporting requirements," according to a description from the regulator.The proposed rule would also let certain crypto assets avoid having to check the box as "investment contracts" under securities law.

"In line with the Commission’s earlier interpretative guidance, this proposal would also allow for a safe harbor once an issuer has completed or permanently ceased all essential managerial efforts that it represented or promised it would take under an investment contract," said SEC Chairman Paul Atkins in a statement.

The SEC is inviting the public and industry to weigh in with comment letters for 60 days, after which the input is typically reviewed for at least a few months as the agency writes the final version of the rule. The commission had cancelled the previous meeting at the last minute, citing an "unforeseen scheduling issue."

This development — distinct from the SEC's separate crypto initiative known as the "innovation exemption" for tokenized securities, which hasn't yet emerged — comes as the Senate is still engaged in a last-ditch effort to use the final three weeks of floor time next month to finish the Digital Asset Market Clarity Act. After that period, Congress will be on a lengthy recess until after the midterm elections.

"Given the progress made in Congress to date on market structure legislation, let me be clear up front: 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," Atkins said.