SEC Mulls Crypto-Based Capital-Raising Rule

The U.S. regulator floats expanded investor access and simplified financial disclosures.

This article appears in the October issue of Global Finance Magazine.

The Securities and Exchange Commission is considering a new route for raising capital that does not involve issuing equity or debt, but instead uses crypto assets. In August, the regulator released the aptly named Regulation Crypto Assets (Reg CA) for comment. 

The regulation, as initially written, would permit companies to raise up to $5 million over a four-year period or up to $75 million in each 12-month period. To raise the higher amount, the issuer would need to provide financial statements and comply with federal securities law’s anti-fraud and anti-manipulation provisions.

New Asset, New Rules

The new rule differs notably from alternative capital-raising methods under Regulation Crowdfunding, Regulation A, and Regulation D, which let issuers raise a maximum of $5 million, $75 million, and an unlimited amount of funds, respectively.

Reg CA, as proposed, would allow issuers to provide potential investors with principles-based financial disclosures, giving issuers the flexibility to select which financial information to disclose rather than following a prescriptive list of required information, with the intention that issuers focus on the substance of the information provided.