SEC Commissioner Hester Peirce criticizes the agency's regulatory approach to crypto, particularly highlighting the controversial Staff Accounting Bulletin 121 and calling for a more transparent and inclusive framework to address the complexities of the industry.
SEC Commissioner Questions SEC
During the recent "SEC Speaks" event, SEC Commissioner Hester Peirce didn't mince her words when critiquing the agency's approach to regulating the crypto industry. Specifically, she took aim at Staff Accounting Bulletin 121 (SAB 121), released in March 2022.
Known for her independent views, Peirce emphasized the complexities introduced by crypto regulation, particularly SAB 121 and related oral guidance. She criticized the agency's decision-making process, highlighting the lack of consideration for all aspects and the ad hoc nature of proceedings conducted through staff support.
Controversy Surrounding SAB 121
SAB 121 mandates companies holding cryptocurrencies for customers to record these assets as liabilities on their balance sheets. This directive has sparked debates within the crypto community and among legislators regarding its potential to discourage banks from offering custodial services for digital assets.
Additionally, there have been legislative attempts to rescind SAB 121. The House Financial Services Committee has recently voted to advance a resolution aiming to nullify the bulletin, arguing that such significant regulatory measures should be decided by the Commission itself, not through staff-level guidance.
Peirce’s Views On SAB 121
Peirce, who is also referred to as “crypto mom” because of her vocal support for the industry, highlighted that the SAB 121 was issued without consulting banking institutions and, thus, fails to safeguard investors. Instead, due to its capital requirements, it effectively excludes seasoned banks and broker-dealers from entering the crypto custody market.
She pointed out,
“It is driving broker-dealers to allocate significant capital to their crypto custody businesses or to avoid the business altogether. SAB 121 arguably does not protect investors.”
Moreover, in the event of a custodian's failure, she emphasized that these assets might be treated as belonging to the failed entity rather than its customers.
Peirce’s Criticisms
Peirce stressed the importance of incorporating significant rules with broad provisions into the full commission's record, advocating for a more democratic and open governance approach to regulatory policy.
Referring to her prior speech, "Merely a ‘SECret Garden,'" Peirce expressed concerns about sole reliance on staff guidance, which she believes may lead to interpretations that are not aligned with existing laws. She emphasized the need for public discourse and challenge within a transparent regulatory framework.
Peirce also highlighted the commission's diminishing leadership role due to a lack of timely feedback or clarification, pointing out broader issues within the SEC.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
