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

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As an analyst with extensive experience in financial regulations and a keen interest in digital assets, I find myself intrigued by the ongoing debate surrounding SAB 121. Commissioner Hester Peirce’s concerns echo those of many industry participants who view this regulation as an overreach by the SEC.

Commissioner Hester Peirce of the U.S. Securities and Exchange Commission (SEC) continues to express concerns about the SEC’s guidance document, known as Staff Accounting Bulletin No. 121 (SAB 121).

Her comments were made after the speech delivered by SEC Chief Accountant Paul Munter on September 9, during which he emphasized that the SEC’s stance on SAB 121 remains unchanged.

SEC Maintains Support for SAB 121 But Hester Peirce Has Concerns

Hester Peirce mentioned Munter, stating that the Securities and Exchange Commission (SEC) staff remains committed to the guidelines set forth in SAB 121 despite growing examination. She explained that this rule requires entities to recognize their liability on their financial statements to reflect their obligation to safeguard digital assets held for others.

Munter made it clear that this approach guarantees that investors get essential and prompt information to assess the risks involved in managing the custody of cryptocurrencies on behalf of others.

Additionally, he highlighted some special cases where certain entities would be exempt from recognizing liabilities related to their crypto custodial services. For example, bank-holding companies offering these services and receiving bankruptcy protections wouldn’t necessarily have to acknowledge such obligations. Similarly, broker-dealers handling crypto transactions but not controlling the cryptographic keys could potentially escape this requirement as well.

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.

More recently, Hester Peirce voiced concerns about her regulatory body’s strategy regarding cryptocurrency, highlighting challenges in using the Howey test to decide what constitutes a security. This, she noted, has resulted in an atmosphere of regulatory ambiguity and confusion within the crypto sector.

Industry Pushback on the ‘Crypto Law’ Grows

Although these goals are set, SAB 121 has faced significant concerns within the industry, with numerous stakeholders viewing it as an excessive use of the SEC’s regulatory power. Earlier in the year, US legislators tried to repeal the SEC’s regulations, but this effort was stopped by a veto from President Joe Biden.

After Munter’s presentation, Commissioner Hester Peirce voiced her continuous apprehensions regarding SAB 121 via a popular social media site, X. She invited everyone to share their opinions about the regulation with her via email, aiming for a wider range of perspectives.

Nate Geraci, head of the ETF Store, added his thoughts, noting that the Securities and Exchange Commission seems reluctant to allow regulated financial organizations to safeguard digital assets. This suggests a cautious or limiting stance on the part of the regulatory authority.

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.

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2024-09-11 00:31