Global: SEC’s Closed-Door Policy Hindering Crypto Innovation, Says Hester Peirce

Hester Peirce, Commissioner of the United States Securities and Exchange Commission (SEC), has once again criticized her agency, citing concerns over its guidance on crypto custody and advocating for increased engagement with the public.

During her address at the annual SEC Speaks Conference on April 2, Peirce, affectionately known as “Crypto Mom” among crypto enthusiasts, lamented the emergence of what she termed a “particularly pernicious weed” within the SEC’s “secret garden” of policy directives. Her remarks were prompted by the controversial Staff Accounting Bulletin 121 (SAB 121).

Issued by the SEC in March 2022, SAB 121 delineates the regulator’s accounting standards for institutions involved in crypto asset custody. Notably, SAB 121 poses significant hurdles for many banks seeking to provide custodial services for crypto assets on behalf of clients.

Peirce criticized SAB 121 for its potential adverse impact, suggesting that it does not adequately safeguard investors but rather deters experienced banks and broker-dealers from entering the crypto custody sector due to its capital requirements.

Furthermore, Peirce highlighted the potential risk wherein, if a custodian were to fail, crypto assets held could be treated as belonging to the failed entity rather than its customers.

The House Financial Services Committee’s approval of a resolution on March 1 seeking to overturn SAB 121 underscores the contentious nature of the bulletin. Republican Congressman Tom Emmer labeled SAB 121 as “illegal” and attributed it to SEC Chair Gary Gensler’s alleged bias against the digital asset ecosystem.

Peirce also criticized the SEC’s diminished engagement with the public, particularly regarding emerging technologies like crypto, noting a shift in the agency’s culture under current leadership.

She emphasized the reluctance of both investors and companies to engage with the SEC due to concerns over potential enforcement actions, particularly in crypto-related matters identified as enforcement priorities by the regulator.

Peirce urged the SEC to reinstate open communication with the public, provide clearer guidance, and foster responsible innovation, including in areas such as crypto custody. She proposed the creation of an advisory committee to better understand the practical implications of regulatory rules.

In a supportive response, Coinbase’s chief legal officer Paul Grewal echoed Peirce’s sentiments, endorsing her call for improved understanding of regulatory rules through the establishment of an advisory committee.