What could be in store for the SEC under the newly confirmed chairman’s leadership?
On April 9, the Senate confirmed Paul Atkins as SEC chair in a vote of 52-44 along party lines (with one Republican, two Democrats, and Bernie Sanders abstaining from the vote). Atkins is a veteran of the SEC, having served as a commissioner under three different chairs from 2002 to 2008.
In his opening statement at his confirmation hearing, Atkins emphasized the need for clear, effective, and nonpolitical regulation, especially regarding digital assets, through a “rational, coherent, and principled approach.” Atkins also criticized burdensome rules that have hindered investment and vowed to focus on fostering innovation and market confidence.
We believe that the SEC will be active in three areas under Atkins’ leadership:
- turning back the clock on cryptocurrency regulation,
- democratizing access to private markets,
- making it easier for companies to stay private.
Let’s look at what to expect in each of these areas.
Turning Back the Clock on Crypto
Since the start of President Donald Trump’s second term, the SEC dropped its enforcement in over six cases against big names in cryptocurrency such as Coinbase COIN, Kraken KRKNF, and Robinhood HOOD.
It has settled with others, such as Ripple (XRP). The SEC issued a statement declaring that stablecoins pegged to a currency such as USD are “Covered Stablecoins” and, as such, do not involve the offer and sale of securities. Covered Stablecoins therefore fall outside of SEC jurisdiction, as they are designed to maintain stable value relative to a currency. Previous SEC Chair Gary Gensler viewed stablecoins as a risk to financial stability, investor protection, and compliance with anti-money-laundering regulations. In his view, the vast majority of cryptocurrencies, including algorithm stablecoins, are securities and fall under SEC jurisdiction, with “nonsecurity” stablecoins falling under the Commodity Futures Trading Commission.
By contrast, the SEC appears to be doing an about-face on digital assets, separating itself further from jurisdiction, except when the product falls into a clear existing security structure, such as a crypto ETF.
Democratizing Access to Private Assets
SEC leadership has spoken about increased access to private investments for individuals. In particular, it could increase access via changes to the accredited investor definition to broaden the base of accredited investors.
At the SEC’s recent 44th Annual Small Business Forum, Commissioner Mark Uyeda questioned whether an “all-or-nothing” approach to the definition was sensible and proposed that perhaps individuals should be permitted to invest a small amount each year in private companies. Such an approach would be akin to how the regulations currently work in the area of crowdfunding.
The SEC could also increase access for retail investors by approving retail products containing private investments, such as the BondBloxx Private Credit Trust that is currently in the approval process to be listed on the Chicago Board Options Exchange, or SPDR SSGA IG Public & Private Credit ETF PRIV, which is actively trading. It is likely to make changes in some or all of these areas, and these are all ones to keep an eye on.
Enabling Companies to Stay Private
Public markets are highly regulated, and, along with compliance burdens, there are many reasons a company might want to stay private. In 2023, Commissioner Hester Peirce stated, “enhanced access to private capital is a positive development not only for companies, but for investors. Having a robust private market contributes to the health of our economy, and we should not look to impose public-market-style regulations on private markets.”
In this vein, the SEC could make it easier for private companies with respect to reporting and raising capital via alternative funding pathways—for example, by staying private. Uyeda has spoken about reducing fees associated with raising funds via crowdfunding.
Peirce has expressed a growing interest in Regulation A offerings, particularly regarding crypto, and she is interested in increasing utilization of Reg A fundraising. Reg A is an attractive method for companies that wish to list on a market but want to avoid the IPO process and stock markets. This registration allows for limited fundraising via OTC markets.
Shelf registration is another alternative funding pathway that can allow companies to stay private. Shelf offerings are an SEC provision that allows companies to register a security for sale without listing on an exchange up to three years in advance of sale, giving the issuer that long to sell the shares with comparatively little additional paperwork.
Uyeda expressed concern that unlisted companies with a public float of under $75 million are ineligible to use shelf registration statements, thus restricting access to capital.
Thus, there are many ways to help companies raise money without giving them the incentive to access the public markets, and the SEC could be active in any or all of these areas.
Conclusion
In summary, three things investors should watch for from this new SEC are a step back from the world of digital assets, greater access to private investments for retail investors, and reducing barriers to capital raising in the private markets.
All of these potential changes will have significant implications for investor protection that we will monitor in the coming months and years.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
