The Debate Over SEC’s Staff Accounting Bulletin No. 121 (SAB 121)

The US Securities and Exchange Commission (SEC) Commissioner Hester Peirce has recently expressed ongoing concerns regarding the SEC’s Staff Accounting Bulletin No. 121 (SAB 121). In a response to a speech by SEC Chief Accountant Paul Munter, where he reiterated the Commission’s unchanged stance on SAB 121, Peirce highlighted her reservations about the regulation.

Munter emphasized the SEC staff’s belief that entities should record a liability on their balance sheets to account for their responsibility in safeguarding digital assets held for others. This, according to Munter, ensures that investors have access to relevant information needed to assess the risks associated with safeguarding cryptocurrency on behalf of others. However, Munter did mention certain exceptions to this rule, such as bank-holding companies with bankruptcy protection and broker-dealers without control over cryptographic keys.

Despite the SEC’s intentions to enhance transparency and improve risk management within the cryptocurrency industry, SAB 121 has faced significant backlash. Many in the industry believe that the regulation represents an overreach by the SEC. Earlier this year, US lawmakers attempted to overturn the SEC’s guidance, but President Joe Biden vetoed the repeal. The debate surrounding SAB 121 has only intensified in light of these developments.

In response to Munter’s speech, Commissioner Peirce took to social media to reiterate her concerns about both the content and process of SAB 121. She encouraged others to share their thoughts on the policy with her via email. The pushback from Peirce suggests that there are still significant disagreements within the SEC regarding the implementation of SAB 121.

Nate Geraci, the president of the ETF Store, criticized the SEC’s reluctance to allow regulated financial institutions to custody digital assets. According to Geraci, the SEC’s stance on this issue limits the ability of financial institutions to offer custodial services for cryptocurrencies, hindering the industry’s growth and development.

The ongoing debate over SEC’s Staff Accounting Bulletin No. 121 highlights the complexities and challenges of regulating the fast-evolving cryptocurrency industry. While the SEC aims to improve transparency and risk management, disagreements within the Commission and criticism from industry experts demonstrate the need for a more nuanced approach to regulating digital assets.