United States Securities and Exchange Commission Commissioner Hester Peirce has once again criticized her agency, this time taking aim at the regulator’s guidance on crypto custody. During her speech at the SEC Speaks Conference on April 2, Peirce, who is affectionately known as “Crypto Mom” by crypto enthusiasts, expressed her concerns about the SEC’s policy guidelines, which she referred to as a “particularly pernicious weed” in the agency’s “secret garden.” Peirce’s comments were specifically in response to the controversial Staff Accounting Bulletin 121 (SAB 121).
Issued in March 2022, SAB 121 outlines the SEC’s accounting guidelines for institutions that wish to custody crypto assets. However, this bulletin has faced criticism because it prevents many banks from offering custody services for crypto assets on behalf of their clients. Peirce emphasized that SAB 121, which was issued without input from the banking sector, does not protect investors and instead excludes experienced banks and broker-dealers from the crypto custody business due to its capital implications.
Furthermore, Peirce highlighted that if a custodian were to fail, the assets could be treated as belonging to the failed entity rather than the customers of that entity. This raises concerns about the security and protection of investors’ assets in the event of a custodian’s failure.
In response to these issues, the House Financial Services Committee voted in favor of a resolution on March 1, aiming to overturn SAB 121. Republican Congressman Tom Emmer described the bulletin as “illegal” and criticized SEC Chair Gary Gensler for his perceived bias against the digital asset ecosystem.
Peirce also expressed her disappointment with the SEC’s lack of engagement with the public, particularly regarding emerging technologies like crypto. She argued that the agency’s culture has changed, resulting in a less productive interaction with the public. Peirce stated that both investors and companies are hesitant to meet with the SEC due to fear of enforcement actions, especially in areas such as crypto, which the regulator has prioritized for increased enforcement.
To address these concerns, Peirce called for the SEC to restore open communication with the public, provide clear guidance, and support responsible innovation in areas like crypto custody. She suggested the creation of an advisory committee to better understand how rules are actually operating in practice.
Coinbase chief legal officer Paul Grewal expressed his support for Peirce’s remarks in a post on April 3. He endorsed her idea of establishing an advisory committee to gain a deeper understanding of how regulations function in reality.
In conclusion, Hester Peirce’s criticisms of the SEC’s guidance on crypto custody reflect her concerns about the exclusion of experienced banks, the potential risks for investors, and the lack of productive engagement with the public. She calls for the restoration of open communication, clear guidance, and support for responsible innovation, including in the field of crypto custody.