SEC Advances Capital Formation and Tokenization Initiatives as Congress Passes Venture Capital Bills and Prudential Regulators Address GENIUS Act Implementation and Debanking

The House passed two capital formation bills aimed at easing securities regulations for venture capital funds, and the following day SEC Chair Paul Atkins outlined the Commission’s agenda to revive U.S. capital markets, including plans to introduce an “innovation exemption” for certain crypto-related activities. The SEC also convened a panel examining how tokenization could modernize the issuance, trading and settlement of public equities while ensuring that existing investor protections continue to apply.

CFTC Acting Chair Caroline Pham announced that listed spot cryptocurrency products will begin trading for the first time on CFTC-registered futures exchanges. Prudential regulators detailed their progress in developing GENIUS Act rules for payment stablecoin issuers, and the House released a staff report alleging debanking of digital asset firms, prompting an OCC response reiterating that the agency has moved away from using “reputational risk” as a supervisory tool.

Congressional Updates

House Passes Capital Formation Bills

• On Dec. 1, the House passed two capital formation bills aimed at easing securities regulations applicable to venture capital funds: the Improving Capital Allocation for Newcomers Act of 2025 (H.R. 4431) and the Developing and Empowering our Aspiring Leaders Act of 2025 (H.R. 4429). The next day, on Dec. 2, SEC Chairman Paul Atkins announced the SEC’s intent to reform disclosure rules, making it easier for companies to go public.
• H.R. 4431 amends Section 3(c)(1) of the Investment Company Act of 1940 with respect to the definition of qualifying venture capital funds. The bill increases the cap on aggregate capital contributions from $10 million to $50 million and increases the number of beneficial owners in a qualifying venture capital fund from 250 to 500. Furthermore, the bill calls for a study on the impact of the amendments on businesses and startup companies and empowers the SEC to make rules further increasing or decreasing the cap on capital contributions and/or beneficial owners. By expanding the criteria for qualifying venture capital funds, the bill would make it easier for funds that are larger in size or more broadly held to avoid regulation as an investment company, potentially increasing capital available to early-stage and start-up companies.
• H.R. 4429 requires the SEC to expand the definition of a “qualifying investment,” for purposes of the exemption from registration for venture capital fund advisers under the Investment Advisers Act of 1940, to include: (i) an equity security issued by a qualifying portfolio company that is acquired in a secondary acquisition and (ii) an investment in another venture capital fund. As a guardrail, the bill also requires the SEC add to the definition of “venture capital fund” as an additional condition of qualification a 49% cap on the percentage of a fund’s aggregate capital contributions and uncalled committed capital that is held in one or more venture capital funds or qualifying investments acquired in a secondary acquisition.

Federal Regulators Discuss GENIUS Act Implementation

• On Dec. 2, the House Financial Services Committee held a hearing titled “Oversight of Prudential Regulators.” The Committee heard testimony from Federal Reserve Vice Chair for Supervision Michelle Bowman, OCC Comptroller Jonathan Gould, NCUA Chairman Kyle Hauptman and FDIC Acting Chairman Travis Hill. The regulators gave an update on the implementation of the GENIUS Act (S. 1582).
• Vice Chair Bowman stated that the Federal Reserve is “working with the other banking regulators to develop capital, liquidity and diversification regulations for stablecoin issuers as required by the GENIUS Act.” Bowman continued: “[w]e also need to provide clarity in treatment on digital assets to ensure that the banking system is well placed to support digital asset activities. I think this includes clarity on the permissibility of activities, but also a willingness to provide regulatory feedback on proposed new use cases.”
• Acting Chair Hill explained that the FDIC has “begun work to promulgate rules to implement the GENIUS Act; we expect to issue a proposed rule to establish our application framework later this month and a proposed rule to implement the GENIUS Act’s prudential requirements for FDIC-supervised payment stablecoin issuers early next year.”
• OCC Comptroller Gould stated the agency is also working to implement the Act.

House Financial Services Committee Publishes Debanking Report

• On Dec. 1, the House Financial Services Committee released a staff report titled “Operation Chokepoint 2.0: Biden’s Debanking of Digital Assets,” detailing alleged debanking practices involving digital asset firms. The report asserts that a combination of regulatory uncertainty, limited access to financial services and increased enforcement activity against digital assets contributed to 30 individuals and entities losing banking relationships.
• That same day, the OCC issued a statement responding to the report, noting that “the OCC has removed references to reputation risk in its handbooks and guidance documents and, with the Federal Deposit Insurance Corporation, issued a proposal to codify the elimination of reputation risk from its supervisory programs.” The OCC stated that “these actions eliminate one of the tools previously used by regulators to drive debanking.”

Regulatory Agency Updates

SEC Chair Atkins: The SEC Is Reviving American Capital Markets

• On Dec. 2, SEC Chair Paul Atkins delivered remarks at the New York Stock Exchange announcing the goal to reform disclosure rules and increase opportunity for IPOs. He stated: “One of my priorities as Chairman is to reform the SEC’s disclosure rules with two goals in mind. First, the SEC must root its disclosure requirements in the concept of financial materiality. Second, these requirements must scale with a company’s size and maturity.” He noted the importance of “[b]alancing disclosure obligations with a company’s ability to bear the burdens of compliance.”
• Atkins continued: “Our regulatory framework should provide companies in all stages of their growth and from all industries with the opportunity for an IPO, particularly an IPO that represents a capital raising mechanism for the company, instead of a liquidity event for insiders.”

SEC’s Upcoming Innovation Exemption

• On Dec. 2, in a CNBC Squawk Box interview, SEC Chair Paul Atkins discussed the agency’s approach to digital asset regulation heading into 2026. Asked whether the SEC could move forward without new legislation and make progress before year-end, Atkins said the agency is continuing to provide “technical assistance” to Congress while ensuring any new measures are consistent with existing securities laws. Atkins also emphasized that the SEC currently has enough authority to drive forward on digital asset rules. He reiterated that the SEC has been developing an “innovation exemption” for crypto-related activities and said he hopes to get that out in about a month.

SEC Panel Discusses Tokenization of Equities

• On Dec. 4, the SEC Investor Advisory Committee held a panel regarding the tokenization of equities, and explored the potential ways tokenization could improve how public equities are currently issued, traded and settled while addressing how existing investor protections and securities laws apply.
• SEC Chair Paul Atkins stated that “[d]istributed ledger technology and the tokenization of financial assets, including securities, have the potential to transform our capital markets.” Atkins noted three tokenization models that illustrate global demand for U.S. market exposure built on the blockchain: (i) companies issuing equity “directly on public distributed ledgers in the form of programmable assets that, in some cases, have the ability to embed compliance, voting rights and other governance functions,” (ii) third parties “tokenizing equities by creating on-chain security entitlements, which represent ownership interests in equities that exist off-chain” and (iii) “synthetic exposures” meaning “tokenized products that seek to mirror public equity performance.”
• Commissioner Hester M. Peirce noted that “[w]e do not have the luxury of time in tackling these questions. Tokenization of U.S. equities is already happening: Anybody can spin up a liquidity pool or launch a trading protocol that enables investors to get exposure to our equities markets.” She continued that a “workable regulatory framework for the issuance and trading of tokenized securities” is necessary, otherwise, “American investors will buy tokenized securities overseas.” Peirce confirmed that the “Commission staff is working on a tailored innovation exemption that would permit this activity in the United States, with strong investor protection guardrails, including Commission oversight.”

CFTC Acting Chair Pham Announces First-Ever Listed Spot Crypto Trading on US Regulated Exchanges

• On Dec. 4, CFTC Acting Chair Caroline Pham announced that “listed spot cryptocurrency products will begin trading for the first time in U.S. federally regulated markets on CFTC registered futures exchanges.” Pham stated that, “for the first time ever, spot crypto can trade on CFTC-registered exchanges that have been the gold standard for nearly a hundred years, with the customer protections and market integrity that Americans deserve.” The exchange announced the “launch of the first-ever leveraged retail spot crypto exchange operating under CFTC regulation,” which is scheduled to begin on Dec. 8.
• The announcement is a part of the agency’s Crypto Sprint and follows recommendations made in the President’s Working Group on Digital Asset Report.
• Acting Chair Pham said in October that she expects the CFTC to issue before the end of 2025 guidance on the use of tokenized collateral, including stablecoins, in derivative transactions.

CFTC Announces Enforcement Reforms

• On Dec. 1, CFTC Acting Chair Caroline Pham announced amendments to the Commission’s Rules of Practice and Rules Relating to Investigations intended to increase transparency and predictability in enforcement matters. The changes clarify what constitutes an adjudicatory proceeding, remove obsolete references to rescinded regulations, confirm that the Commission may accept settlement offers by order and refine how the Division of Enforcement recommends and communicates settlements and other actions to respondents, including the Wells process.