United States Securities and Exchange Commission (SEC) Commissioner, Hester Peirce, has once again criticized her agency and its guidance on crypto custody, while advocating for more engagement with the public. Peirce, who is affectionately known as “Crypto Mom” by crypto enthusiasts, made these remarks during the SEC Speaks Conference on April 2. She referred to a “particularly pernicious weed” that has grown in the SEC’s “secret garden” of policy guidelines, specifically addressing the controversial Staff Accounting Bulletin 121 (SAB 121).
SAB 121, issued by the SEC in March 2022, lays out the regulator’s accounting guidelines for institutions interested in custodying crypto assets. However, this bulletin has received backlash as it prevents many banks from offering crypto custody services to their clients. Peirce pointed out that SAB 121, which was issued without input from the banking sector, fails to protect investors and excludes experienced banks and broker-dealers from the crypto custody business due to capital implications. She also highlighted the risk that if a custodian fails, the assets could be treated as belonging to the failed entity rather than the customers.
On March 1, the House Financial Services Committee voted in favor of a resolution to overturn SAB 121, with Republican Congressman Tom Emmer describing it as “illegal” and reflective of SEC Chair Gary Gensler’s bias against the digital asset ecosystem.
Peirce also expressed her concern about the SEC’s lack of productive engagement with the public, particularly regarding emerging technologies like crypto. She stated that the agency’s culture has changed, which has affected its interaction with the public. Peirce further mentioned that investors and companies are hesitant to meet with the SEC due to fear of enforcement actions, especially in crypto-related areas that the regulator has prioritized for increased enforcement.
The commissioner called for the SEC to restore open communication with the public, provide clear guidance, and support responsible innovation, including in the area of crypto custody. Coinbase’s chief legal officer, Paul Grewal, expressed support for Peirce’s views in a post on April 3, endorsing her suggestion to establish an advisory committee to gain a better understanding of how rules actually function.
In light of these developments, questions arise about whether SEC Chair Gary Gensler has the final say in matters concerning crypto regulation.