April 3, 2024
SEC's Closed-Door Approach Hinders Crypto Innovation, Says Hester Peirce
Policy & Regulation

SEC’s Closed-Door Approach Hinders Crypto Innovation, Says Hester Peirce

United States SEC Commissioner Hester Peirce has once again voiced her discontent with her agency.

This time aiming at the regulator’s guidance on cryptocurrency custody while advocating for increased public engagement.

Hester Peirce speaking at SEC Speaks 2024. Source: SEC

Critique of SEC’s Crypto Custody Guidance

Speaking at the annual SEC Speaks Conference on April 2, Peirce, affectionately known as “Crypto Mom” among enthusiasts, criticized the SEC’s guidance on crypto custody, particularly addressing the controversial Staff Accounting Bulletin 121 (SAB 121).

Peirce likened the SEC’s policy guidelines to a “secret garden” where a “particularly pernicious weed” had sprouted.

Peirce’s critique was directed at SAB 121, issued by the SEC in March 2022, which outlines accounting guidelines for institutions intending to custody crypto assets.

Notably, SAB 121 has implications for banks, restricting their ability to custody crypto assets on behalf of clients.

According to Peirce, SAB 121, issued without input from the banking sector, fails to adequately protect investors and hinders experienced banks and broker-dealers from participating in the crypto custody business due to its capital implications.

She highlighted the potential risk that if a custodian were to fail, customers’ assets could be treated as belonging to the failed entity rather than the customers themselves.

Congressional Response and Continued Criticism

In a show of dissent, the House Financial Services Committee voted in favour of a resolution on March 1 aimed at overturning SAB 121.

Republican Congressman Tom Emmer labelled SAB 121 as “illegal,” attributing it to SEC Chair Gary Gensler’s perceived bias against the digital asset ecosystem.

Peirce also lamented the SEC’s lack of productive engagement with the public, particularly concerning emerging technologies like crypto.

She noted a shift in the agency’s culture, leading to hesitancy among investors and companies to interact with the SEC due to fears of enforcement actions.

Call for Open Communication and Clear Guidance

Peirce urged the SEC to restore open communication with the public, provide clear guidance, and foster responsible innovation, including in areas such as crypto custody.

She advocated for a shift towards facilitating innovation rather than impeding it.

In response to Peirce’s remarks, Coinbase’s chief legal officer Paul Grewal expressed support and endorsed her suggestion to establish an advisory committee to better understand how rules function in practice.

Source: Paul Grewal

Peirce’s critique underscores ongoing debates surrounding regulatory clarity and engagement in the cryptocurrency space, highlighting the need for constructive dialogue and collaborative efforts between regulators, industry participants, and the public.

Image: Wikipedia

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