The US Securities and Exchange Commission has received sharply different requests over its proposed crypto fundraising framework, with industry support for tailored exemptions facing objections over investor protection and bank funding. Letters dated October 20 and 21 set out the competing positions as the regulator considers its Regulation Crypto Assets proposal.

The SEC issued the proposal on August 18 and listed October 20 as the comment deadline. Its current page still marks the measure as proposed. These responses do not establish an adopted exemption.

Under the SEC proposal, one registration exemption would allow offerings of up to $5 million over four years and another up to $75 million in each 12-month period. Issuers would provide principles-based disclosures and remain subject to antifraud and antimanipulation provisions. A separate conditional safe harbour concerns when an asset is no longer subject to an investment contract.

Industry seeks clearer exit tests

The Blockchain Association’s October 20 letter supports the framework but asks for clearer ways to establish when an issuer has finished the managerial work promised to purchasers. It wants objective indicators rather than an inflexible test. Its proposed examples include a network operating as described and allowing the token to be used for its intended purpose, without requiring every planned feature to be complete.

The association also argues that responsibility should follow control. It says an issuer should disclose facts it controls or can reasonably know, rather than answer for independent third-party activity. It asks for protection for secondary-market participants who rely in good faith on an issuer’s transition report. It also asks for guidance on intermediary registration, arguing that issuer-level relief would be insufficient if secondary-market rules remained unworkable.

Nasdaq’s October 21 submission backs a tailored, disclosure-based regime, but wants a firm boundary around traditional securities. It asks the SEC to state expressly that company shares, debt and fund interests, including their tokenised versions, cannot become covered investment contracts under this framework. Moving a conventional security onto a distributed ledger should not create a different regulatory standard, Nasdaq argues.

Nasdaq also supports the proposed mechanism for ending an investment contract after the required managerial efforts have been completed or permanently stopped. It favours certification backed by an analysis filed with the regulator. Separately, it wants inflation adjustments extended beyond crypto offering limits to other capital-raising thresholds, arguing that traditional issuers should not be left with fixed nominal limits while crypto issuers receive automatic adjustments. It also requests a mapping between newly introduced terms and established securities-law definitions.

A call to withdraw the proposal

The Americans for Financial Reform Education Fund letter, dated October 20, takes the opposite position. It asks the SEC to withdraw the proposal and consider narrower changes within existing offering exemptions. The organisation argues that the package gives too much weight to reducing issuers’ costs and too little to possible investor losses, inadequate disclosure and incentives for insiders to sell their holdings.

Its objections extend to the proposed exit from an investment contract. The group argues that allowing issuers to determine when their obligations have ended could weaken investor protection. It also challenges the proposed displacement of state securities registration requirements and the SEC’s legal authority for the package. For whitepapers, it calls for consistent data fields, narrative requirements and technical standards so investors can compare offerings.

Community banks ask for a funding review

The Independent Community Bankers of America’s October 20 response raises a different concern: whether expanding crypto issuance and trading could shift deposits from community banks towards stablecoin issuers, intermediaries or larger reserve-holding banks. It distinguishes money remaining somewhere in the banking system from stable local deposits remaining available to the banks that fund small businesses, farms and housing.

ICBA does not claim this proposal alone would cause a specified amount of deposit loss. It asks for a supplemental economic analysis with federal banking agencies before the SEC finalises the measure. Its suggested safeguards include reporting on stablecoin settlement and banking relationships, periodic reviews of deposit concentration, power to suspend accommodations when risks emerge, and expiry unless the Commission affirmatively renews them.

Related reading: Dalimss News has covered the separate SEC crypto custody proposal and the CFTC consultation on leveraged crypto trading.