California regulator opposes SEC crypto plan over investor protection

Key points

• The DFPI filed a comment letter opposing Regulation Crypto Assets, warning that federal limits on state registration and qualification would remove screening tools.
• The SEC proposal would let qualifying issuers raise up to $5m over four years through a startup exemption, or up to $75m per 12-month period under a crypto fundraising exemption.

California's Department of Financial Protection and Innovation has opposed the SEC's Regulation Crypto Assets proposal, warning that it could weaken investor protection. In a comment letter to the agency, reported on 21 Oct, the DFPI said federal limits on state registration and qualification requirements would cost states their preventive screening of offerings before sale.

The SEC's framework sets two routes. A startup exemption would allow qualifying issuers to raise up to $5m over four years, while a separate crypto fundraising exemption would permit up to $75m in any 12-month period. Both would require narrative disclosures covering the project and its risks, and the fundraising route would also demand financial statements and ongoing reporting. Federal antifraud rules would still apply, and states would keep authority to investigate securities fraud.

A conditional safe harbour would let a crypto asset leave investment contract treatment once set conditions are met, including completing or permanently ending the promised essential managerial efforts.

Ripple, Coinbase and Nasdaq have each sought changes to the proposal, on trading safeguards, clearer rules for later token sales and protection for tokenised traditional securities respectively.

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