The U.S. Securities and Exchange Commission (SEC) is preparing a tokenization policy using exemptive authority rather than formal rulemaking, according to Chairman Paul Atkins. While the crypto sector has long awaited permanent regulatory clarity, former SEC lawyers indicate this 'innovation exemption' will be narrow and time-limited, aimed at testing tokenized securities in a controlled environment. The approach allows firms to place assets on blockchains temporarily without full securities law compliance. However, several experts note that exemptive actions, while more durable than staff-level guidance, lack the permanence of formal rules or legislation. The SEC could still pursue rulemaking later, but the process is lengthy. Tokenization advocates believe this policy may boost institutional confidence, but some players require legislative backing, such as the Digital Asset Market Clarity Act, to fully engage. Atkins himself has acknowledged the need for congressional action to provide a future-proofed framework. The policy's narrow scope and potential ease of reversal under a future administration raise concerns, though the economic value created by new products may deter drastic changes. The SEC must also address issues like third-party token handling, secondary sales, and shareholder rights.

Key facts

• SEC plans tokenization exemption using exemptive authority, not formal rulemaking.
• Policy will be narrow and time-limited, acting as a proving ground.
• Exemptive actions more durable than staff guidance but less permanent than rules.
• Legislation like the Clarity Act may be needed for full industry confidence.
• Economic value of new products may deter future reversal of the policy.