SEC Chair Atkins Orders Staff Review of Crowdfunding Rules After 9,800 Offerings Averaging $364,000

SEC Chairman Paul Atkins wants the rules for small-business crowdfunding loosened. He said so today, Oct. 27, in virtual remarks to the agency's Small Business Capital Formation Advisory Committee.

"I have asked Commission staff to evaluate which aspects of Regulation Crowdfunding can be amended to reduce compliance burdens and improve the rules' attractiveness for issuers and investors," Atkins said.

That is a request for a staff review. It is not a rule proposal, and Atkins gave no timeline for one.

What Reg CF has produced so far

The SEC adopted Regulation Crowdfunding in 2015 to lower the cost of small securities offerings that draw small investments from the crowd. The intended beneficiaries were startups and small businesses. The rules took effect in 2016.

According to Atkins, more than 9,800 Reg CF offerings over the last decade have raised an average of $364,000. The cap is $5 million in any 12-month period.

That is a small average for a program the agency built a regulatory framework around. Atkins did not say in his remarks which provisions he considers too burdensome.

Crowdfund Capital Advisors, an advisory firm, asked the SEC earlier this year to raise the per-offering cap from $5 million to $20 million. The firm said the current cap forces companies seeking larger sums to run multiple rounds.

IPO communications and private-market access

Crowdfunding was one piece of a broader pitch. Atkins also repeated his plan to rework the Securities Act's "gun-jumping" rules, which restrict what issuers and underwriters can say to investors around an IPO.

He called the rules "often confusing and difficult to navigate" and said they can chill communication. He laid out three areas for staff to examine:

• Restrictions on the content of communications and on who may receive them.
• Clearer standards for when a communication counts as an offer.
• Easily applied cure provisions to reduce inadvertent violations by issuers.

Atkins noted that the Commission last did a comprehensive review of the communication rules in 2005, when he served as a Commissioner.

He also pointed to the accredited-investor notices the Commission issued last month. One would let people qualify by passing an exam that the Financial Industry Regulatory Authority would develop. The committee had recommended a sophistication test three times, and Atkins said he has long backed the idea. He said expanding private-market access while keeping fraud protections "has long been one of my top priorities."

The committee also issued recommendations last month supporting the Commission's proposals on optional semiannual reporting, simpler filer classifications and registered-offering reform. Atkins said those proposals aim to reduce friction and encourage more companies to go public and stay public.

The crypto rule next door

The crowdfunding review lands while the SEC is sorting through comments on its proposed Regulation Crypto Assets. The comment period closed Oct. 20. The proposal was published Aug. 21.

As described by the Crowdfunding Professional Association, the proposed Startup Exemption would let eligible issuers raise up to $5 million over no more than four years through crypto-related investment contracts. It would lack many of the safeguards Reg CF requires. A separate fundraising exemption would allow up to $20 million in 12 months under its first tier. One account of the proposal puts the annual ceiling for qualifying projects at $75 million.

The association argues the gap is backwards. In its Oct. 20 comment letter, it noted that Reg CF stays capped at $5 million despite a mandatory registered intermediary, investment limits, financial disclosures and resale restrictions. It wants the Reg CF limit raised to $20 million and asked the SEC to explain why reporting and communications requirements differ across exemptions.

"As the SEC develops Regulation CA, it should look at how all the exemptions fit together," said Brian Belley, the association's president, who called for "a coherent framework instead of adding to a patchwork of exemptions."

The association also recommends that crypto startups face investment limits for non-accredited investors, proportionate third-party oversight of cash contributions, scaled financial disclosures and a minimum 12-month holding period for related persons.

The crypto proposal has other opponents. U.S. banks have warned that the proposed exemptions could drain deposits, while investment managers including Bitwise and the Alternative Investment Management Association pushed in their letters for broader access to digital assets inside funds and exchange-traded products.

What comes next

Atkins asked the advisory committee for its views on possible Reg CF changes. The agency has not said when staff will report back or when the Commission might propose amendments. It also has not said when it will act on the comments filed on the crypto proposal.

When it does, the sequencing matters. Whether Reg CF's $5 million cap and its intermediary and disclosure requirements change before or after crypto issuers get their own exemption will decide whether a local business and a token project face comparable terms.