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SEC Commissioner Hester Peirce criticized her own agency and its controversial Staff Accounting Bulletin 121 (SAB 121) during remarks at the Practicing Law Institute’s 2024 SEC Speaks annual event on Tuesday, claiming the federal regulator is “scaring people off.”
A Weed in the SEC’s Secret Garden
Peirce opened her speech by referencing her 2019 SEC Speaks address, where she compared the SEC to a secret garden where the “maze of staff guidance” might be “inconsistent with a plain reading of the rulebook.”
“Nobody can challenge these diktats because they are not final agency action, but compliance is mandatory for an entity wishing to avoid SEC delays, denials, and enforcement and examination scrutiny,” Peirce said. “So everybody silently complies.”
The SEC Commissioner further likened SAB 121, which requires publicly traded companies safeguarding crypto assets to list both assets and liabilities on their balance sheets, to a “weed” that has “sprung up in the secret garden.”
“SAB 121 arguably does not protect investors,” Peirce said. “Its capital implications keep out of the business many banks and broker-dealers that have long years of custody experience.”
SEC Commissioner Criticizes SAB 121
Created by the Office of the Chief Accountant (OCA), the accounting bulletin could qualify as regulatory overreach, Peirce suggested, noting that the Government Accountability Office (GAO) ruled that the SEC should have submitted the bulletin to Congress.
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“To make matters worse, OCA issued—orally at a conference of accountants—a multi-pronged framework for applying SAB 121 to broker-dealers,” Peirce continued. “The Commission has not published that framework or any subsequent staff efforts to clarify the framework’s scope, but many auditors and broker-dealers are treating it as binding.”
The SEC is a regulatory agency with an enforcement division, not an enforcement agency. Why are we leading with enforcement in crypto?
— Hester Peirce (@HesterPeirce) May 3, 2022
Peirce stated that the accounting bulletin has wide-ranging effects, stemming from “driving broker-dealers to allocate significant capital to their crypto custody businesses” or simply avoiding “the business altogether.”
Heavy Regulations Are “Scaring People Off”
The SEC has long faced scrutiny for its regulation-by-enforcement approach under Chair Gary Gensler, which has resulted in litigation against key crypto industry players, including Kraken, Coinbase, and Ripple.
Peirce appeared to chide the agency’s direction under Gensler, claiming that the heavy-handed enforcement strategy may be doing more harm than good by “scaring people off” from engaging in discussions about regulation.
“The Commission’s announcement of a large ramp-up in its cyber-and crypto-enforcement unit, repeated assertions that the crypto industry is lawless, and treatment of cyber-incidents as fertile ground for enforcement actions add to these fears,” she continued.
Peirce’s comments mark the latest development in the emerging landscape of crypto regulation and may signal growing dissatisfaction with the SEC’s direction among its own employees.
