New SEC guidance on accounting and disclosures rankles Commissioner Peirce

U.S. companies that safeguard their clients' crypto assets received new accounting guidance Thursday in the form of a Staff Accounting Bulletin from the Securities and Exchange Commission, or SEC. The guide garnered a strong response from SEC Commissioner Hester Peirce, a staunch supporter of cryptocurrencies.

Staff Accounting Bulletin 121 indicated the high technological, legal and regulatory risks associated with the custody of crypto assets, in relation to traditional assets. Those risks affect the operations and financial condition of companies like Coinbase, PayPal and Robinhood, which protect users' crypto assets and allow them to trade them on their platforms. For this reason, companies are advised to record their users' assets on their books as liabilities, as well as assets at fair value on initial recognition.

In addition, the bulletin advised companies on disclosure of the risks of crypto assets and reminded them of existing regulations on disclosure.

Commissioner Peirce published a response to the newsletter the same day. He wrote, “My concern is not the accounting determination itself, which may be appropriate, but the way the change is being made,” which he characterized as

“Yet another manifestation of the Crypto Securities and Exchange Commission’s scattershot and inefficient approach.”

Peirce's first objection to the bulletin was its timing, as the bulletin cites an October 2020 Attorney General Report, which in turn cites information from 2018. SEC staff have been reviewing statements provided by companies in question all the time since the 2020 report, Peirce noted.

Commissioner Peirce also noted that the bulletin “fails to acknowledge the Commission's own role in creating the legal and regulatory risks that warrant this accounting treatment” by failing to provide legal and regulatory clarity. Acknowledging his own role in the problem "would be appropriate," Peirce said.

He noted that the guidance is narrow in scope and very specific, and reads as if the guidance is applicable. But, as a staff statement, the bulletin is not applicable. “If we are trying to encourage companies to enter our public markets, we need to take a more deliberate approach to changing the rules, one that involves consulting with affected parties,” Peirce concluded.