The SEC has submitted a proposal to amend capital formation rules for startups. These changes would clarify some of the fogginess within crypto securities regulations. Additionally, the proposed amendments are set to enable more innovative startups of all kinds to raise cash.
If the proposal goes through, the cap on Reg A+ security offerings increases from $50 million to $75 million. Crowdfunding (or Reg CF) limits would rise from $1 million to $5 million. The main idea is to pump capital formation, or in other words, create investment spending. In the current environs, this could bring in much needed dollars into a cash thirsty economy.
Another of the major points of the proposal is the recognition of unique security products, such as with cryptocurrencies. The amendment, if passed, would put an official recognition on new and innovative security instruments. That way polices can be created to better evaluate and more efficiently process them. This applies mainly to the ‘exempt offering framework” which provides compliance assistance for processing, among other things, token security offerings and other types of offerings that don’t fit into other categories because of their uniqueness.
SEC’s Proposed Rule:
Facilitating Capital Formation and Expanding Investment Opportunities by Improving Access to Capital in Private Markets
SUMMARY “The Securities and Exchange Commission is proposing amendments to facilitate capital formation and increase opportunities for investors by expanding access to capital for entrepreneurs across the United States. Specifically, the proposed amendments would simplify, harmonize, and improve certain aspects of the exempt offering framework to promote capital formation while preserving or enhancing important investor protections. Over the years, and particularly since Congress passed the Jumpstart Our Business Startups Act of 2012, the Commission has introduced, expanded, or otherwise revised a number of exemptions from registration. The proposed amendments seek to address gaps and complexities in the exempt offering framework that may impede access to investment opportunities for investors and access to capital for issuers.”
How will this affect the crypto industry?
If it goes into effect, it will now be easier for tech startups to raise funds via security token offerings. Additionally, they will be able to raise more money if the amendments get approved. In publishing this proposal, the SEC also committed to establishing regulatory relief for private placements and exemptions. That way they can achieve their goal of expanding investment opportunities while reducing friction points in the compliance process.
The US may be signaling a readiness to adapt to the evolving needs of capital raises. Or, some would argue, this is part of a desperate mission to raise cash within a faltering economy.
In creating the proposal, SEC officials were able to use submitted comments on the topic from industry leaders. The main points of complaint include lack of clarity and the backlog and difficulty of pushing through projects. As the number of exemptions grew within the current tech revolution, the Commission saw the exemption integration framework grow significantly in complexity. Thus it slowed the process while still not addressing the needs of security token offerings.
Now, with somewhat more clarity, and at the very least a commitment to improving the process, the stranglehold on American innovators in the crypto space has loosened. Also noted in the proposal was the recommendation to better facilitate how to determine if a separate securities sale is part of the same offering. Could this pave a fork in the road for utility tokens?
The Security and Exchange Commission invites industry experts to submit comments about the proposed amendments. To send a response, click here to be led to the comments instructions.