SEC's Hester Peirce Slams Agency's Approach With SAB 121

SEC Commissioner Hester Peirce Slams Agency’s Approach With SAB 121

September 11, 2024

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Highlights

The SEC maintains its support for SAB 121 despite industry concerns.
SEC Commissioner Hester Peirce continues to voice opposition to SAB 121.
Industry experts criticize the SEC's approach to crypto custody, highlighting a potential bias.

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US Securities and Exchange Commission (SEC) Commissioner Hester Peirce has voiced ongoing reservations regarding the SEC’s Staff Accounting Bulletin No. 121 (SAB 121).

Her remarks followed a speech on September 9 by SEC Chief Accountant Paul Munter, who reiterated that there has been no change in the Commission’s perspective on SAB 121.

SEC Maintains Support for SAB 121 But Hester Peirce Has Concerns

Hester Peirce was referring to Munter when he highlighted that the SEC staff continues to support the guidelines of SAB 121 amidst increasing scrutiny. He detailed that the regulation mandates entities to acknowledge liability on their balance sheets to represent their obligation to secure digital assets held on behalf of others.

Munter clarified that this method ensures that investors receive pertinent and timely data to evaluate the risks associated with the custody of cryptocurrencies for others.

He also pointed out certain exceptions; for instance, bank-holding companies that provide crypto custodial services with bankruptcy protections might not have to recognize such liabilities. Similarly, broker-dealers that manage crypto transactions without controlling the cryptographic keys could also be exempt from this requirement.

Munter’s perspective is consistent with the SEC’s overall stance that SAB 121 is designed to increase transparency and enhance risk management within the rapidly growing cryptocurrency sector.

Recently, Hester Peirce criticized her own agency’s approach to cryptocurrency regulation, pointing out that difficulties in applying the Howey test—a long-standing method to determine what qualifies as a security—have led to a climate of regulatory uncertainty and confusion within the industry.

Industry Pushback on the ‘Crypto Law’ Grows

Despite these objectives, SAB 121 has been met with considerable apprehension within the industry, with many stakeholders regarding it as an overextension of the SEC’s regulatory authority. Earlier in the year, US lawmakers passed a vote to rescind the SEC’s guidelines, but this attempt was ultimately thwarted by a President Joe Biden veto.

Following Munter’s speech, SEC’s Commissioner Hester Peirce expressed her ongoing concerns about SAB 121 on the social media platform X. She encouraged the public to email her their views on the policy, seeking broader input.

Nate Geraci, president of the ETF Store, also weighed in, remarking that the SEC appears to be hesitant to permit regulated financial institutions to custody digital assets, indicating a cautious or restrictive approach by the regulatory body.

He expressed that the SEC seems unwilling to allow regulated financial institutions the ability to custody crypto. It appears the Commission favors a company they permitted to IPO and then sued, to custody the majority of spot BTC ETF assets.