SEC Proposes Regulation Crypto Assets Framework for Clarity

The US Securities and Exchange Commission (SEC) has proposed a new framework for regulatory clarity in the crypto asset space. The proposal, titled 'Regulation Crypto Assets,' aims to provide clear pathways for issuers of certain investment contracts involving crypto assets while preserving core investor protections.

According to the SEC, crypto assets have not fit neatly into the existing US federal securities regulation framework, leading to regulatory ambiguity and uncertainty. To address this issue, the SEC has proposed two exemptions from registration requirements: the Startup Exemption and the Fundraising Exemption.

The Startup Exemption is a one-time, nonexclusive exemption for offerings raising up to $5 million over four years, adjusted for inflation. It requires issuers to file a notice of reliance on Form NOR, maintain a public website with narrative disclosures, and file a transition report after four years. In contrast to certain Regulation D private placement exemptions, the Startup Exemption does not restrict general solicitation or participation by non-accredited investors.

The Fundraising Exemption is a nonexclusive, two-tiered exemption for US domestic issuers, modeled in part on Regulation A under the Securities Act. It allows unregistered offerings of up to $20 million in any 12-month period and up to $75 million with conditions. The exemption requires issuers to file an offering statement on Form 1-‍CRYPTO and maintain ongoing reporting requirements.

The SEC has also proposed an Investment Contract Safe Harbor, which would provide a conditional, nonexclusive safe harbor from the term 'investment contract' in the definition of 'security' under the Securities Act. The safe harbor is intended to provide greater clarity as to when a covered investment contract has ceased to exist.