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United States Securities and Exchange Commission (SEC) Commissioner Hester Peirce has expressed worries about the agency’s position on cryptocurrency custody once more and has called for greater openness and participation from the public.
Speaking to guests at the yearly SEC Speaks Conference on April 2, Peirce—who aficionados have come to refer to as “Crypto Mom“—expressed her dissatisfaction with the agency’s handling of crypto custody regulation. She compared the rules of the SEC to a “secret garden” that has been contaminated by a “particularly pernicious weed,” making special reference to the contentious Staff Accounting Bulletin 121 (SAB 121).
SAB 121 outlines accounting standards for organizations engaged in cryptocurrency custody and was released by the SEC in March 2022. But rather than protecting investor interests, Peirce bemoaned the fact that the bulletin—which was created without input from the banking industry—hinders them. SAB 121, in particular, has strict capital requirements that deter many banks from providing crypto custody services to their customers.
Peirce underscored the potential repercussions of SAB 121, emphasizing the adverse effects on investor protection and market accessibility. She highlighted concerns that the bulletin compels broker-dealers to divert substantial capital to crypto custody operations or altogether refrain from such ventures. Moreover, in the event of custodian insolvency, Peirce warned of the ambiguity surrounding asset ownership, potentially jeopardizing investor assets.
“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,” Peirce remarked, elucidating the inherent risks associated with the SEC’s current regulatory framework.
Peirce’s assessment urges regulators to engage in cooperative engagement with industry stakeholders and acts as a catalyst for more extensive talks concerning crypto custody regulation. Proactive involvement and flexible frameworks are essential to guarantee investor safety and market integrity as the cryptocurrency sector changes further.