NASAA crypto letter urges SEC to withdraw Regulation Crypto Assets
State securities regulators told the SEC its new crypto offering exemptions would invite fraud and override state law, and asked the agency to start over.
A NASAA crypto letter is now on the SEC's desk. The North American Securities Administrators Association, which represents state securities regulators, asked the Securities and Exchange Commission to pull its Regulation Crypto Assets proposal, in a 17-page comment letter dated Oct. 20, the last day of the comment period. Its contents were reported on Thursday, Oct. 22.
What happened
The SEC unveiled the proposal in mid-August. It would create a startup exemption allowing issuers to raise up to $5 million over four years and a second exemption for up to $75 million every 12 months, both with "principles-based" narrative disclosures, WealthManagement reported via Yahoo Finance. It would also offer a safe harbor once an issuer has finished or permanently stopped the managerial efforts it promised, a step that could push some tokens toward the CFTC.
NASAA president Elizabeth Bowling, who is also a Tennessee securities official, signed the letter. It says the plan would remove disclosure, filing and resale safeguards "without due regard to the adverse impact on retail investors" and argues it goes beyond the SEC's authority to preempt state law.
The letter is blunt about the startup exemption. It says the rule could let anyone, anywhere, set up a website and sell insider-held tokens to retail buyers while claiming SEC approval, and predicts a rise in pump-and-dump schemes, which crypto users call "rug pulls."
Why it matters
Bowling also warned that an issuer could claim its managerial work had ended either because it met its promises or because it failed to meet them, Yahoo Finance reported. NASAA asked the agency to repropose a new set of exemptions and, as a fallback, to swap principles-based disclosure for prescriptive rules adapted to blockchain offerings.
The NASAA crypto letter puts the states in direct conflict with SEC chair Paul Atkins, who has said the rule would give crypto founders "clear pathways to raise capital under the federal securities laws." Crowdfund Insider noted that NASAA has opposed earlier capital-raising exemptions, including updates to Regulation A and crowdfunding.
The fight matters more after Congress failed to pass market structure legislation, leaving agencies to write rules alone, as we described in Clarity Act failure and the rulemaking path. We covered the SEC side of this proposal in our SEC crypto offering rules piece.
What's next
The preemption fight could reach court. NASAA argues that the 1996 National Securities Markets Improvement Act gives the SEC only narrow, explicit powers to override state registration, and that the agency has not shown its new procedures protect investors as well as the state reviews they would replace.
The SEC now has to review the comments before it can adopt a final rule, and it is not bound by NASAA's view. States would keep their anti-fraud powers under the proposal, but NASAA wants a role in registration and review too. The full text is in NASAA's comment letter.
Expect the NASAA crypto letter to be cited by critics in Congress and by any challenger if the SEC finalises the rule largely unchanged.
This article is for information only and is not investment advice.