Hester Peirce Criticizes SEC’s Closed-Door Policy for Hampering Crypto Innovation

On April 2, the United States Securities and Exchange Commission (SEC) Commissioner Hester Peirce condemned the agency’s stringent policy guidelines limiting innovations in the crypto industry.

Hester Peirce Advocates for More Interaction Between SEC & the Public

Hester Peirce’s swipe against the SEC was made at the annual SEC Speaks Conference. The commissioner noted that the agency needs to have more interactions with the public before implementing policies.

https://www.youtube.com/live/ZCCXHV98v7M?si=3VINDVq8K15LrpoW

Her criticism stemmed from the SEC’s controversial policy dubbed the Staff Accounting Bulletin 121 (SAB 121), which was issued by the agency on March 24, 2022. She noted that a “particularly pernicious” weed had sprung up in the agency “secret garden” of policy guidelines.

The SAB 121 outlines accounting guidelines for institutions seeking custody of crypto assets.

Notably, the policy directs companies that safeguard assets for clients to put a liability and corresponding asset on their balance sheet and adjust them as the value of the stored asset changes, while banks were prevented from having the custody of crypto assets on behalf of customers.

However, Hester Peirce condemned the policy, stating that the SAB 121 was issued without public opinion and input from the banking sector. According to her, the policy does not protect investors, instead, it locks out experienced banks and brokers from entering 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,” she added.

Investors and Brokers Are Scared of Engaging With SEC

Hester Pierce further disclosed that some executive directors at the SEC have been changed, which has also been instrumental to the inadequate interaction with the public. Therefore, many companies and investors are hesitant to meet with the SEC due to fear of enforcement actions.

She said:

“Countless people have told me that they used to feel comfortable coming in and speaking with the Commission and its staff, but no more. When it comes to interpretive guidance, “the Commission is closed for business.” New product ideas? “Not now.” Approval to do things for which other firms already have approval? “That permission was very limited.” Feedback on how a particular set of facts interacts with a new rule? “We cannot provide legal advice.”

https://twtter.com/RuleXRP/status/1775200892402143501?s=20

Peirce stated that interactions between SEC and market participants are rounds of unproductive monologues, while processes that have historically been straightforward, such as product filings for new funds, have become complicated.

However, the commissioner called for the agency to restore open communications with industry players and the general public to provide clear guidance on crypto custody. She claimed that creating room for more interactions would enable the US financial authority to implement clearer policies that drive, rather than impede, vast innovation in the crypto industry.

Responding to the comments by Peirce, Coinbase Chief Legal Officer Paul Grewal shared his support for the criticism of SEC’s policies in an X post on April 3.

Grewal’s comments came on the heels of Coinbase’s ongoing legal battle with the SEC over the alleged offering of unregistered securities, thereby affecting the exchange as it is having adverse effects on Binance.US, which is also facing the same fate with the financial authority.