Crypto Mom Hester Peirce, a Commissioner at the Securities and Exchange Commission (SEC), has expressed her support for repealing SAB 121, the SEC’s Staff Accounting Bulletin that requires companies holding digital assets for customers to report them as liabilities on their balance sheets. Peirce made this statement during an SEC hearing with the House Financial Services Committee, where she acknowledged that the agency has granted exemptions to certain entities providing crypto custody services in order to bypass the restrictions imposed by SAB 121.
The controversy surrounding SAB 121 stems from the fact that it disrupts traditional accounting practices and adds financial burdens on companies offering crypto custody services. The crypto industry argues that this rule is a regulatory overreach that unnecessarily increases business costs and hampers innovation. Financial institutions have struggled to comply with SAB 121 as it complicates their ability to safely and affordably offer custody services for digital assets. Critics have also accused the SEC of a lack of transparency regarding exemptions from the rule, further adding to the confusion within the industry.
Despite legislation being passed to overturn SAB 121, the bill was vetoed by President Biden, causing lawmakers to continue pushing for its repeal. They argue that SAB 121 hinders the growth of the crypto sector without providing much investor protection. However, SEC Chairman Gary Gensler defended the rule, stating that it represents “good accounting” and is based on the treatment of assets in bankruptcy cases.
On the other hand, Commissioner Hester Peirce, nicknamed “Crypto Mom,” expressed her agreement with repealing SAB 121 during the hearing. She suggested that the SEC should go back to the drawing board and reconsider the appropriate accounting standards for the crypto industry. Peirce emphasized the importance of involving the public in the rulemaking process rather than simply issuing staff bulletins and enforcing them.
Peirce also noted that while SAB 121 technically applies to public companies, the SEC has extended its reach to broker-dealers and is now starting to roll it back for certain entities. She highlighted that SAB 121 has contributed to Coinbase being the sole custodian of crypto assets among ETF issuers in the US, stating that it makes it challenging for other entities to act as custodians in this space.