Crypto Mom" Peirce Critiques SEC's Crypto Custody Rules, Calls for Greater Transparency
Summary:
SEC Commissioner Hester Peirce, known as ‘Crypto Mom,’ critiqued the agency's guidelines on crypto custody during the annual SEC Speaks Conference on April 2. Commenting on the controversial Staff Accounting Bulletin 121 (SAB 121), she argued it prevents experienced banks from crypto custodying and fails to protect investors. Peirce emphasized the need for improved public engagement and enhanced transparency in guideline development, especially in emerging technologies like crypto. Coinbase's chief legal officer Paul Grewal backed her call for an advisory committee to better understand regulatory implications.
Commissioner Hester Peirce of the US Security and Exchange Commission (SEC) has criticized her organization's policy on cryptocurrency regulations, emphasizing the need for more public engagement. During her speech at the annual SEC Speaks Conference on April 2, Peirce, fondly known in cryptocurrency circles as 'Crypto Mom,' asserted that an "especially harmful plant” has emerged in the SEC’s "hidden garden” of policy directions. This was in reference to the divisive Staff Accounting Bulletin 121 (SAB 121).
In March 2022, the regulator introduced SAB 121, a framework outlining the SEC's accounting practices for institutes that aspire to manage crypto assets. It is noteworthy that SAB 121 restricts many banks from managing cryptocurrency assets for their clients.
Peirce faulted SAB 121 for not involving the banking sector in its wholesaling, asserting that it does not guard investors, but instead excludes seasoned banks and brokerage firms from the cryptocurrency custody business due to capital consequences. "It is pushing brokerage firms to assign valuable capital to their crypto asset management enterprises or to steer clear from the business entirely. In essence, SAB 121 is not for the protection of the investors," she contended.
She further expounded that if the custodians default, the assets would be treated as if they belonged to the fallen entity rather than to its customers. On March 1, Congressman Tom Emmer and the House Financial Services Committee (HFSC) endorsed a proposal aiming to repeal the bulletin. Emmer labelled SAB 121 as an “unlawful” instantiation of SEC Chair Gary Gensler’s “ceaseless bias against the digital asset ecosystem.”
Moreover, Peirce noted that the SEC has become increasingly insular, limiting fruitful engagement with the public, particularly in new fields such as crypto. She said, "The leadership atmosphere at the SEC has shifted, impacting the agency's way of public interaction." Peirce added that both investors and corporations are reluctant to liaise with the SEC for fear of punitive measures, particularly in sectors highlighted by the SEC for increased enforcement, such as crypto.
Peirce urged the SEC to re-establish transparent communications with the public, deliver explicit guidance and promote, rather than hinder, responsible innovation, including in crypto asset management. Coinbase's chief legal officer Paul Grewal expressed support for Peirce’s ideas in an April 3 blog post, endorsing her proposal to form an advisory committee for better understanding of rule functionality.
Published At
4/3/2024 8:34:57 AM
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