SEC Commissioner Hester Peirce has acknowledged that the agency granted exemptions to specific entities to provide crypto custody services for Bitcoin and other cryptocurrencies, bypassing the restrictions imposed by SAB 121.
Peirce disclosed this position during yesterday’s SEC hearing with the House Financial Services Committee.
The Controversy Over SAB 121
For context, the SEC’s Staff Accounting Bulletin 121 (SAB 121) requires companies holding digital assets for customers to report them as liabilities on their balance sheets. This has sparked controversy, as it disrupts traditional accounting practices and adds financial burdens on companies offering crypto custody services.
The crypto industry views this rule as regulatory overreach, arguing that it unnecessarily increases business costs and stifles innovation. Specifically, financial institutions have found it challenging to comply with SAB 121, as it complicates their ability to safely and affordably offer custody services for digital assets.
Critics also highlight a lack of transparency from the SEC, particularly regarding exemptions from the rule, which has caused further confusion within the industry.
Interestingly, SAB 121 has united both chambers of Congress, which passed legislation to overturn the rule in July. However, the bill was vetoed by President Biden.
Nevertheless, U.S. lawmakers continue to push for the SEC to rescind SAB 121. They argue that it stifles the growth of the crypto sector while providing little benefit in terms of investor protection.
SEC Chairman Not Rescinding SAB 121
During the latest hearing, SEC Chairman Gary Gensler was specifically asked whether he would commit to rescinding SAB 121. He declined, asserting that it represents “good accounting.”
Gensler’s main defense is that the rule pertains to the treatment of assets in bankruptcy. After multiple crypto bankruptcies, courts have classified certain assets as liabilities, which forms the basis of the accounting bulletin.
Crypto Mom Agrees to Rescind SAB 121
In contrast, Commissioner Hester Peirce, known as “Crypto Mom,” expressed her agreement to rescind SAB 121 when a similar question was posed to her. She suggested that the SEC should revisit the drawing board to determine the appropriate accounting standards for this space.
Peirce emphasized the importance of involving the public in the process rather than simply issuing a staff bulletin and enforcing it.
She also pointed out that while the rule technically applies to public companies, the SEC has extended it to broker-dealers and is now beginning to roll it back for certain entities.
Additionally, Peirce noted that SAB 121 has contributed to Coinbase being the only custodian for crypto assets among ETF issuers in the U.S.
“SAB 121 makes it very hard for people to be custodians in this space,” she commented.