SEC’s Hester Peirce gives advice to crypto industry as frustration with agency grows

US Securities and Exchange Commission Commissioner Hester Peirce is once again taking a critical stance against how her colleagues communicate with and enforce actors in the digital asset space.

In a speech given at the Practising Law Institute’s SEC Speaks event Tuesday, Peirce called out the controversial Staff Accounting Bill 121, introduced in March 2022, calling it “a particularly pernicious weed.”

SAB 121, which under securities law is not an official rule, states that crypto custodians should report a liability and “corresponding assets” on their balance sheets.

“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,” Peirce said. “It is driving broker-dealers to allocate significant capital to their crypto custody businesses or to avoid the business altogether.”

SAB 121 is intended to guard against the “significant risks and uncertainties associated with safeguarding crypto assets,” SEC staff said at the time.

Congress has also taken note of the guidance. Earlier this year, the Government Accountability Office (GAO) found that the SEC had failed to follow the Congressional Review Act (CRA) when it issued SAB 121. The SEC later countered that SABs are not subject to follow CRA since they are not official rules.

Sen. Cynthia Lummis, R-Wyo., and Reps. Mike Flood, R-Neb., and Wiley Nickel, D-N.C., issued a joint resolution in February to repeal the SEC’s Staff Accounting Bill (SAB) 121.

Peirce on Tuesday also offered advice to market participants, who she said are growing increasingly frustrated with the “‘secret garden’ — the maze of staff guidance that serves to define practices across the securities industry in a way that may be inconsistent with a plain reading of the rulebook.”

“Countless people have told me that they used to feel comfortable coming in and speaking with the Commission and its staff, but no more,” Peirce added.

Those looking to “nudge the SEC in the right direction” should continue to engage with the Commission, Peirce said, recommending that businesses and company leaders keep a record of all SEC meetings, come prepared with an agenda and supporting materials and coordinate messages with others across the industry, when possible.

“Do not be a stranger and do not give up,” Peirce said. “Carefully consider what the staff is saying. If you do not see a strong legal justification for stopping your idea, do not give up.”

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