During a hearing before the House Financial Services Committee, Gary Gensler, chairman of the U.S. Securities and Exchange Commission (SEC), faced criticism for the agency’s policies and actions. One of the main concerns raised was related to the SEC’s Staff Accounting Bulletin (SAB) 121, which provides guidance on accounting and disclosure of crypto assets held by public companies. Representative Mike Flood highlighted that the SEC did not consult with prudential regulators or the Financial Accounting Standards Board (FASB) before issuing the SAB in March 2022. Flood argued that the SEC justified the bulletin based on accounting guidelines that did not exist at the time. The SAB has also faced opposition from SEC Commissioner Hester Peirce and five senators who referred to it as “regulation disguised as staff guidance.”
SAB 121 requires the disclosure of risks associated with custodying digital assets by public companies. However, Flood pointed out that there were no SEC rules addressing the custody of digital assets at the time the bulletin was issued. A proposed rulemaking on digital asset custody was made in February 2023 but has not been finalized. Flood questioned whether the SEC had a strong justification for issuing the guidance in the bulletin or if it was a mistake. The SAB has raised concerns among crypto holders and some lawmakers who believe it places their interests at greater risk.
During the hearing, other topics were discussed, including the SEC’s consideration of spot Bitcoin exchange-traded funds (ETFs) and the agency’s handling of the Grayscale case. Gensler stated that the SEC is still under advisement regarding the Grayscale case after the company won an appeal against the SEC’s decision to reject its Bitcoin ETF application. Gensler also faced criticism from Representative Tom Emmer for alleged partiality within the financial industry, while Representative Ritchie Torres engaged Gensler on the interpretation of the Howey test.
Overall, the hearing highlighted the discontent among lawmakers and stakeholders regarding the SEC’s policies and actions, particularly with regard to the SAB 121 and the approval of spot Bitcoin ETFs. The SEC’s lack of consultation with other regulators and the timing of the bulletin’s release without existing rules raised concerns about the justification behind the guidance and its potential impact on the crypto industry.