SEC's closed-door policy stifling crypto innovation — Hester Peirce


US Security and Exchange Commission Commissioner Hester Peirce has taken another swipe at her agency, criticizing the regulator’s guidance on crypto custody while calling for more interaction with the public. 

Speaking at the annual SEC Speaks Conference on April 2, Peirce — also known by crypto enthusiasts as ‘Crypto Mom’ — said that a “particularly pernicious weed” had sprung up in the SEC’s “secret garden” of policy guidelines. Her comments were made in response to the controversial Staff Accounting Bulletin 121 (SAB 121).

In March 2022, the SEC issued SAB 121, which outlines the regulator’s accounting guidelines for institutions looking to custody crypto assets. Notably, SAB 121 prevents many banks from custodying crypto assets on behalf of clients.

Peirce noted that SAB 121 — issued without input from the banking sector — does not protect investors but instead keeps out experienced banks and broker-dealers from the crypto custody business due to its capital implications.

“It is driving broker-dealers to allocate significant capital to their crypto custody businesses or to avoid the business altogether. SAB 121 arguably does not protect investors.”

Additionally, if the custodian fails, these assets could be treated as if they belong to the failed entity, not the customers of that entity, she added.

On March 1, the House Financial Services Committee (HSFC) voted in favor of a resolution that sought to overturn the bulletin. Republican Congressman Tom Emmer described SAB 121 as an “illegal” example of SEC Chair Gary Gensler’s “unrelenting prejudice towards the digital asset ecosystem.”

Hester Pierce speaking at SEC Speaks 2024. Source: SEC

Additionally, Peirce said the SEC had become closed off to productive engagement with the public, especially when it came to emerging technologies such as crypto.

“The culture at the top of the SEC has changed, which in turn has changed the way the agency interacts with the public,” she said.

Related: SEC’s Hester Peirce wants more decentralization in the financial system

Pierce added that both investors and companies are hesitant to meet with the SEC out of fear of enforcement actions, especially in areas like crypto which the regulator has identified as priorities for ramped-up enforcement.

“People have told me that they desperately want to have substantive discussions with the staff but worry that the inevitable result of such a meeting would be a call from enforcement,”

The Commissioner called for the SEC to restore open communication with the public, provide clear guidance, and facilitate rather than impede responsible innovation, including in areas such as crypto custody.

In an April 3 post to X, Coinbase chief legal officer Paul Grewal shared his support for Peirce’s remarks, throwing his weight behind her suggestion to create an advisory committee to better understand how rules “actually operate.”

Source: Paul Grewal

Magazine: Does SEC Chair Gary Gensler have the final say?





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