Securities Regulation Daily Wrap Up, NASAA NEWS AND SPEECHES—NASAA renews warning over state preemption in SEC offering reform plan, (Oct 15, 2026)
Preempting state review of unlisted registered offerings could remove key safeguards and create incentives for exploitation and fraud.
The North American Securities Administrators Association has reaffirmed its opposition to an SEC proposal that would preempt state review of unlisted SEC-registered offerings. Responding to a recommendation from the SEC's Small Business Capital Formation Advisory Committee, NASAA argues that state-level review provides guardrails and that removing them could have unintended consequences.
Preemption recommendation. In August 2026, the Small Business Capital Formation Advisory Committee met to discuss the SEC's proposal, Registered Offering Reform, which among other changes, would preempt state securities law registration and qualification requirements for registered offerings of unlisted securities. While generally supportive of the proposed rule, the Committee recommended that the Commission confirm that state preemption would achieve the Commission’s goals without unintended consequences from removing state-level review from the offering processes.
NASAA's concerns. In its letter, NASAA said that the Committee's concerns are well founded, particularly for nontraded REITs and BDCs. NASAA believes that offerings such as these carry unique risks for retail investors due to high fees, opacity, illiquidity, and redemption limitations. State registration, NASAA maintains, can address those risks through enhanced disclosures and substantive requirements that can ensure that the offerings are fair and prevent conflicts of interest and restrictions on investor voting rights.
Eliminating the guardrails provided by state registration will likely make nontraded REIT and BDC offerings more unfair to retail investors. These offerings are already associated with fraud and are a major source of customer complaints, and the problems will only get worse when states are no longer gatekeepers, NASAA says. Then, intermediaries will need to devote more effort to finding safe products for investors, leading to measures and restrictions to control risks and ultimately driving up issuer costs.
Unintended consequences. NASAA warned further that preempting state review could create risks beyond nontraded REITs and BDCs because the proposed “qualified purchaser” definition would apply broadly to any SEC-registered offering not listed on an exchange. Because Commission review is limited in availability and scope, the potential exists for a lightly guarded access to retail investors for issuers with weak businesses or fraudulent intentions.
In the end, NASAA believes that the reform proposal would create incentives for exploitation and fraud by removing the primary safeguard against exploitation and fraud. How the market will respond to the investor protection gap created by the proposal is unknown, but there will be an erosion of public trust and an undermining of the capital markets, NASAA says.
MainStory: TopStory FederalPreemption IssuerRegistration NASAANews SecuritiesOfferings