SEC Proposes "Regulation Crypto Assets"

The SEC has proposed a new regulatory framework titled "Regulation Crypto Assets" to create a tailored offering regime for certain investment contracts involving crypto assets. The proposal is designed to facilitate capital formation and accommodate innovation in the crypto asset markets while ensuring that investors are adequately protected and provided with the information they need to make informed investment decisions. The framework specifically applies to "covered investment contracts," defined as investment contracts where a non-security crypto asset is the sole asset subject to the contract.

General Provisions and Disclosures (Subpart A)

Subpart A establishes the foundational rules and definitions for the new regulation.

• Definitions (Rule 100): Defines key terms, including "crypto asset" (a digital representation of value recorded on a cryptographically secured distributed ledger) and "associated crypto network."

• Principles-Based Disclosures (Rule 103): Establishes narrative disclosure requirements for issuers relying on the exemptions. Required disclosure topics include the material terms of the covered investment contract, the subject crypto asset, management and related persons, the plan of development for the crypto network/application, source code security, token economics, governance, and risk factors.

• Bad Actor Disqualification (Rule 104): Conditions the availability of the exemptions on the issuer and related insiders not being disqualified as "bad actors," referencing existing standards under Rule 262 of Regulation A.

The Startup Exemption (Subpart B)

Rule 200 is intended to give early-stage projects a regulatory runway.

• Offering Limit and Duration: Issuers could raise up to $5 million over a maximum four-year period.

• Filing Requirements: Prior to any transaction, the issuer would have to file a notice of reliance on a new "Form NOR" with the SEC.

• Public Disclosures: Issuers would have to make the principles-based disclosures required by Rule 103 publicly accessible and free of charge on a specified website, and would have to update this information annually for material changes.

• Transition Report: At the end of the four-year period, or when the issuer fulfills its developmental goals, the issuer would have to file a transition report on a new "Form TR."

The Fundraising Exemption (Subpart C)

Rules 300 through 307 propose a "Fundraising Exemption" modeled largely on Securities Act Regulation A, designed to facilitate larger capital-raising transactions for covered investment contracts.

• Two Tiers of Offering Limits: Tier 1 would permit offerings up to $20 million in a 12-month period, while Tier 2 would permit offerings up to $75 million in a 12-month period.

• Filing and Financial Statements: Issuers would file an offering statement on a new "Form 1-CRYPTO" via the SEC's EDGAR system. The form would require the Rule 103 narrative disclosures as well as financial statements, which would have to be audited for Tier 2 offerings.

• Investment Limits: For non-accredited investors, aggregate purchases in the offering could not exceed 10 percent of the greater of the purchaser's annual income or net worth.

• Ongoing Reporting: Issuers qualifying under this exemption would be subject to ongoing reporting requirements, including annual reports (Form 1-KC), semiannual reports (Form 1-SC), and current reports (Form 1-UC).

Investment Contract Safe Harbor (Subpart D)

Rule 400 proposes a conditional safe harbor intended to give market participants greater clarity as to when a covered investment contract has ceased to exist.

• An issuer would satisfy it if it has completed or permanently ceased all essential managerial efforts it represented or promised it would engage in, is not making and does not intend to make any new such representations or promises regarding the underlying crypto asset, and has made a public filing certifying that it satisfied the conditions, along with a supporting analysis. The crypto asset would then be deemed by the Commission not to be subject to that investment contract for purposes of the definitions of "security" in the Securities Act and the Exchange Act.

Preemption of State Registration (Subpart E)

Rule 500 proposes to preempt state "Blue Sky" securities registration and qualification laws to facilitate the borderless nature of crypto asset transactions.

• The rule defines a "qualified purchaser" under Securities Act Section 18(b)(3) ("Exemption from State regulation of securities offerings") to include any person purchasing a covered investment contract in a primary offering under Regulation Crypto Assets.

• For secondary market transactions by any person other than an issuer, underwriter, or dealer, the preemption would also apply to covered investment contracts initially sold by the issuer under Regulation Crypto Assets or another federal exemption, and would continue for as long as the issuer keeps satisfying the applicable exemption's information, filing, or periodic reporting requirements.

In a statement on the proposal, SEC Chair Paul S. Atkins said the framework replaces a "square peg in a round hole" approach with rules built for the asset class, while urging Congress to pass the CLARITY Act (see prior coverage) to codify durable market-structure rules.

He noted that the proposal builds on a safe harbor concept previously advanced by Commissioner Hester Peirce (see prior coverage) and complements the SEC's March 2026 interpretation of how the securities laws apply to crypto assets.