SEC tokenization exemption may offer interim relief, but not full regulatory certainty

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SEC tokenization exemption relief

Highlights

SEC plans an 'innovation exemption' allowing limited trading of certain tokenized securities as an interim measure while broader regulation is developed.
The exemption, based on SEC's existing authority, offers more flexibility than rulemaking but lacks the permanence and legal certainty of a full commission rule or law.
Market adoption remains constrained, as industry stakeholders and SEC officials stress that only new legislation can provide the regulatory certainty needed for tokenized securities in the U.S.

Interim framework for tokenized securities

As reported by CoinDesk, the SEC is moving toward what Chairman Paul Atkins has called an "innovation exemption" to support limited trading of certain tokenized securities while the agency works on a longer-term framework.

The approach relies on the commission's exemptive authority rather than immediate notice-and-comment rulemaking, a process that would normally take much longer and carry greater legal durability. SEC Commissioner Hester Peirce says the agency does not have to proceed through rulemaking because it already uses exemptive authority in other areas, while Atkins has described the measure as limited in time and scope.

Former agency officials say that still gives the policy more weight than informal staff statements that have guided other recent crypto positions. Thoreau Bartmann, a former co-chief counsel in the SEC's Division of Investment Management who is now at K&L Gates, says the exemption route may make more sense if the agency lacks explicit rulemaking authority for some crypto issues under current law.

Lawyers also say a formal rule would take at least 12 to 18 months to complete and would itself require a lengthy process to reverse. Patrick Daugherty of Foley & Lardner says that practical timeline may be one reason the SEC is considering a temporary exemption first.

Limits of durability and market effect

Even so, former SEC lawyers say the exemption would not give markets the same permanence as a full commission rule or a law passed by Congress. Charles Riely of Jenner & Block says the end goal remains a statute or rule that provides certainty, with the exemption serving only as a possible step toward that outcome.

That distinction matters because tokenization, the conversion of traditional assets into blockchain-based tokens, is being promoted as a way to enable round-the-clock trading, faster settlement and fewer intermediaries. The SEC still has to address practical issues including third-party created tokens, buyer identification in secondary sales, and how tokenized securities would carry voting rights, dividend rights and security protections.

Ashley Ebersole, chief legal officer at Sologenic and a former senior counsel at the SEC, says legislation is the only route to the permanence some firms need before offering products in the U.S. Atkins has also acknowledged that Congress needs to act, saying in April that the agency's legal framework is still rooted in 1930s-era statutes and needs a future-proof law.

Our earlier coverage of FinCEN’s updated Section 314(b) guidance explained how U.S. banks and other eligible financial institutions can share suspected fraud and other illicit-finance indicators more freely to spot patterns faster. We noted that the clarification expands the types of information that can be exchanged—such as cyber data and behavioral red flags—and frames the change as part of a broader push to modernize compliance and strengthen financial-system security.

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