Hester Peirce Criticizes SEC Overreach

Hester Peirce remarks suggest growing discontent within the SEC regarding its regulatory direction.

Tuesday, during remarks at the Practicing Law Institute’s 2024 SEC Speaks annual event, SEC Commissioner Hester Peirce criticized her agency and its contentious staff accounting bulletin, SAB 121, claiming that the federal agency is “terrifying individuals.”

Hester Peirce began her address by revisiting her 2019 SEC Speaks remarks, in which she likened the SEC to a concealed garden where “the labyrinth of staff guidance” could appear “misguided” or “far from consistent with a straightforward reading of the regulations.”

“Since these directives are not definitive agency action, they cannot be challenged,” Peirce explained. “However, to prevent SEC delays, denials, and examination and enforcement scrutiny, compliance is mandatory.” “So everyone complies in silence.”

Additionally, the SEC Commissioner drew a parallel between SAB 121, which requires publicly traded firms to disclose assets and liabilities on their balance sheets to protect crypto assets, and a “weed” that has “grown in the secret garden.”

Hester Peirce stated, “SAB 121 arguably does not safeguard investors.” Extensive years of experience in custody prevent numerous banks and broker-dealers from entering the business due to the capital implications.

SAB 121, compiled by the Office of the Chief Accountant (OCA), was subsequently proposed by the SEC Commissioner as a regulatory overreach. The Commissioner further noted that the Government Accountability Office (GAO) had ruled that the SEC ought to have furnished Congress with the accounting bulletin.

Hester Peirce continued, “To make matters worse, OCA issued an oral framework for applying SAB 121 to broker-dealers during a conference of accountants.”

Although the Commission has not officially released the framework or any subsequent staff endeavors to elucidate its scope, a considerable number of auditors and broker-dealers consider it to be legally binding.

Peirce stated that the accounting bulletin has far-reaching consequences, including “significant capital being allocated by broker-dealers to their crypto custody businesses” or “the business entirely” being avoided.

Hester Peirce’s Concerns on Crypto Regulation

Under Chair Gary Gensler, the SEC’s regulation-by-enforcement approach has long been scrutinized. As a result, several crypto industry titans, including Kraken, Coinbase, and Ripple, have been sued by the federal agency.

Disapproving of the agency’s trajectory during Gensler’s tenure, Peirce asserted that the stringent enforcement approach might be detrimental rather than beneficial, as it might deter individuals from engaging in dialogues concerning regulation.

She continued, “These concerns are exacerbated by the Commission’s declaration of a substantial increase in its cyber- and crypto-enforcement unit, its repeated claims that the cryptocurrency industry is lawless, and its treatment of cyber-incidents as fertile ground for enforcement actions.”

Peirce’s remarks represent the most recent advancement in the nascent realm of cryptocurrency regulation. They could indicate a broader sense of employee discontentment with the SEC’s trajectory.