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Monday, February 26, 2024
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SEC’s Gensler faces House hearing scrutiny on crypto custody guidance for the second time

In a House Financial Services Committee hearing, Gary Gensler, the chairman of the United States Securities and Exchange Commission (SEC), faced criticism regarding the agency’s policies and actions. One specific concern raised by Representative Mike Flood was the SEC’s issuance of Staff Accounting Bulletin (SAB) 121 in March 2022. Flood pointed out that the SEC did not consult with prudential regulators or the Financial Accounting Standards Board (FASB) before publishing the SAB, which addressed the accounting and disclosure of crypto assets held by public companies. Flood emphasized that FASB only added digital assets accounting standards to its agenda after the publication of SAB 121.

During the hearing, Flood questioned Gensler about the existing requirements that the SAB aimed to clarify. Gensler mentioned a 2009 SEC rule on the custody of digital assets by investment advisers and a rule made in April 2021 concerning special purpose broker-dealers. However, Flood argued that there were no directly relevant SEC rules at the time the bulletin was issued, and a proposed rulemaking on custody, including digital asset custody, had not been finalized. Flood raised the possibility that the SEC either issued the guidance in the bulletin without strong justification or did so in error.

Furthermore, the article highlights the opposition that SAB 121 faced from the start. SEC commissioner Hester Peirce criticized the bulletin on the day it was issued, and five senators, including crypto advocate Cynthia Lummis, expressed their disapproval of the SAB in a letter sent to Gensler. The article concludes by mentioning that during the hearing, Gensler was also questioned about the SEC’s decision-making process regarding Grayscale’s Bitcoin ETF application and faced allegations of partiality within the financial industry from Representative Tom Emmer.

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