Gary Gensler, chairman of the U.S. Securities and Exchange Commission, said at the House Financial Services Committee hearing on Sept. 27 that he enjoys testifying before the committee. That day he enjoyed more than four hours of that pleasure, much of which he dedicated to criticizing the policies and actions of his agency.
Among the long list of discontents, one of the most focused was Rep. Mike Flood's questioning of the SEC's Staff Accounting Bulletin (SAB) 121, issued in March 2022. The SAB concerned the accounting and disclosure of cryptoassets in the custody of public companies such as banks and platforms such as Robinhood and Coinbase.
Flood confirmed Gensler's earlier testimony before the committee that the SEC did not consult with prudential regulators before publishing the SAB. The Financial Accounting Standards Board (FASB), a private body that issues standards related to Generally Accepted Accounting Principles (GAAP), has also not issued anything related to the custody of digital assets, Flood continued. Rather, the FASB added digital asset accounting standards to its agenda in May 2022, following the publication of SAB 121.
Gensler said in a previous hearing that SAB 121 provides guidance on the application of existing requirements under SEC rules, Flood reminded him. What requirements were there? Flood asked. Gensler responded that there is a 2009 rule regarding custody of digital assets by investment advisors, and that the agency had "finalized something around special purpose broker-dealers," Gensler responded. He was apparently referring to an SEC rule. made in April 2021.
โThere were no SEC rules on the books that directly addressed the issue of digital asset custody,โ Flood responded. A regulation on custody, including the custody of digital assets, was proposed in February 2023, but has not yet been finalized, he added, concluding:
โAt the time the bulletin was issued, there was no action by the FASB, nor regulation by the SEC on this issue. [โฆ] โThe SECโs justification for issuing the bulletin is based on accounting guidelines that did not exist when the bulletin was issued.โ
Either the SEC knew there was no โstrongโ justification for issuing the guidance in the bulletin and did it anyway, or it did it in error, Flood said.
Related: Coinbase CEO says funds are safe amid bankruptcy protection fears
SAB 121 requires disclosure of technological, legal and regulatory risks associated with the custody of digital assets. He faced opposition from the beginning. Hester Peirce, SEC Commissioner launched a critical response the day of its dispatch. Five senators, including cryptocurrency advocate Cynthia Lummis, sent a letter to Gensler in June he called the SAB โregulation disguised as staff guidance.โ Lummis and committee chair Patrick McHenry sent another letter to prudential regulators in March arguing that the SAB puts the interests of cryptocurrency holders at greater risk than before its issuance.
Four members of the Financial Services Committee: Flood, Wiley Nickel, Tom Emmer and Ritchie Torres. He sent a letter to Gensler the day before asking you to approve spot Bitcoin exchange-traded funds. This issue was not discussed with much attention at the hearing.
Summary of the 3 hours+ @FinancialCmte Monitoring the SEC hearing with @GaryGensler: (paraphrasing)
- I do not answer Yes/No questions
- I will contact you following the instructions of my staff.
- We are protecting the American public.
- We will not exchange anything for cryptocurrencies; current laws... pic.twitter.com/R7Yj4SBNHLโWilliam Mougayar (@wmougayar) September 27, 2023
Gensler told Nickel that the SEC is "still under advisement" on the Grayscale case after the company won an appeal against the SEC's decision to reject your Bitcoin ETF application. Committee member Warren Davidson expressed concern that the SEC would not approve Bitcoin spot applications in the order they were received, in light of the Grayscale decision. Gensler responded that the requests were still under โactive consideration.โ
emmer criticized Gensler, alleging It was not impartial within the financial industry. Torres contacted Gensler about interpreting Howey's test.
Magazine: Crypto Regulation: Does SEC Chairman Gary Gensler Have the Last Word?
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