Hester Peirce, a commissioner at the US Securities and Exchange Commission (SEC), expressed her skepticism regarding the SEC’s approach to the digital asset industry, particularly pointing out the methods of communication and enforcement used by her SEC colleagues.
In her speech at the SEC Speaks meeting hosted by the Practising Law Institute, Peirce focused on the issues related to the Staff Accounting Bulletin 121 (SAB 121), released in March 2022. Thus, she characterized SAB 121, a requirement for crypto custodians to have a liability and “corresponding assets” on their balance sheets, as “a particularly pernicious weed.”
Peirce opined that, although SAB 121 does not possess the standing of legislation within the securities law, auditors and broker-dealers have gained the practice of implementing the standard as another intending law.
Through this attitude, he has explained that brokerage deals are forced to either invest a lot or completely step out of the sector where crypto custody is concerned. The SEC personnel started SAB 121 to avoid the potential business risks and unpredictability of bolstering crypto asset protection.
The passage of SAB 121 was not an event of unwarranted interest to Congress. The US Government Accountability Office (GAO) revealed early this year that the SEC did not do what the Congressional Review Act (CRA) asked of them when they announced SAB 121.
Consequently, the SEC argued that SABs are outside the regulation of CRA since they do not fall within the definition of the official rules.
The dispute over SAB 121 has prompted Sen. Cynthia Lummis (R-Wyo.) and Reps. Mike Flood (R-Neb.) and Wiley Nickel (D-N.C.) will introduce a concurrent resolution in February that seeks to revoke SAB 121. Moreover, Peirce blamed the “secret garden” of staff guidance, which she believed determines practices within the securities industry in a way that may contradict the clear interpretation of present rules.
In addition to other extracts from Peirce, the speech captures the growing discontent among the participants. This discontent is beginning to discourage market participants from participating in open discussions and with the Commission and its staff, a shift from previous attitudes.
Regarding peers lobbying Peirce to “nudge the SEC in the right direction,” she counseled that they must persist in networking with the SEC, adopting an organized approach and a written account of their meetings, and find time to prepare adequately for the meeting sessions by drafting their agenda and sourcing for supporting material, and wherever possible conform to the industry peers on any issue that may arise.
Peirce urged key players not to withdraw from a possible regulatory response. She encouraged them to examine the staff’s suggestions with a critical mindset and, if the lack of a strong legal ground to halt their rates prevented them from doing so, to continue their work. According to her, the above statement quantifies the urgency of a legal framework that is more synchronized in a very fast-paced digital currency environment.