The U.S. Securities and Exchange Commission abruptly canceled a planned meeting last Friday at which it was expected to advance its Reg Crypto rulemaking and — separately — unveil its repeatedly delayed innovation exemption. The pause appears to be tied to the Clarity Act.

Everything in limbo

The SEC announced early last week that it would hold an open meeting where commissioners would discuss its Reg Crypto proposal, which lays out how companies could fundraise using tokens and eventually get out of SEC jurisdiction if they issue their own digital assets. The agency was also set to unveil at least part of its innovation exemption, industry sources told CoinDesk last week, which would address to some extent how security token issuers can handle underlying securities.

Neither of these happened. The SEC announced late Thursday that it was canceling its planned meeting and would reschedule at a later date. CoinDesk and others also reported on Thursday that the agency was holding off on rolling out its innovation exemption indefinitely.

Why it matters

Earlier this month, as it became clear that the Digital Asset Market Clarity Act would not receive a vote prior to the Senate's August recess, industry participants suggested that if Congress did not act, regulators could. The outcome would not be exactly the same: regulators' actions could be challenged in court and would be easier for a subsequent administration to undo than legislation would be, but the argument was that once regulations become entrenched, they would be difficult to undo.

Breaking it down

That argument presupposes that the SEC and the Commodity Futures Trading Commission (CFTC) are actually able to finalize proposed rules in time for them to settle into place before a future SEC changes its mind. That is not guaranteed.

Individuals familiar with the situation told CoinDesk that concerns about the Clarity Act led to the SEC's postponement. The White House and lawmakers are specifically concerned that any SEC action could further complicate ongoing negotiations over the Clarity Act ahead of the Senate's first vote on the legislation next month. This suggests that no further action from the SEC is likely until after the Senate breaks again in early October.

Timing becomes an issue here as well. The formal rulemaking process takes time: the SEC will solicit and incorporate public feedback on its proposals, publish revised proposed rules and ultimately finalize these rules. After that, companies will need an implementation period to ensure they are compliant with the regulations. One industry source told CoinDesk that just the rulemaking phase could take close to a year, followed by another year for implementation. That timeline brings the industry very close to the next presidential administration, which could make it easier to undo any final frameworks or regulations.

The week ahead

• Wednesday: The White House will host crypto CEOs ahead of their meeting at the CFTC.
• Thursday, 17:00 UTC (1:00 p.m. ET): The CFTC's Innovation Advisory Committee will meet.

This article is drawn from State of Crypto, CoinDesk's newsletter looking at the intersection of cryptocurrency and government, originally published by CoinDesk. Feedback can be sent to the author at nik@coindesk.com, on Bluesky at @nikhileshde.bsky.social, or through the newsletter's Telegram group.