SEC Commissioner Hester Peirce criticized her own agency and its controversial staff accounting bulletin, SAB 121, during Tuesday remarks at the Practicing Law Institute’s 2024 SEC Speaks annual event, claiming the federal agency is “scaring people off.”

A Weed In The SEC’s Secret Garden

To kick off her speech, Peirce referred back to her 2019 SEC Speaks remarks where she compared the SEC to a secret garden where “the maze of staff guidance” may be “inconsistent with a plain reading of the rulebook.”

“Nobody can challenge these diktats because they are not final agency action, but compliance is mandatory for an entity wishing to avoid SEC delays, denials, and enforcement and examination scrutiny,” Peirce said. “So everybody silently complies.”

The SEC Commissioner further likened SAB 121, which mandates that publicly traded companies safeguarding crypto assets must list both assets and liabilities on their balance sheet, to a “weed” that has “sprung up in the secret garden.”

“SAB 121 arguably does not protect investors,” Peirce said. “Its capital implications keep out of the business many banks and broker-dealers that have long years of custody experience.”

SEC Commissioner Criticizes SAB 121

Put together by the Office of the Chief Accountant (OCA), the SEC Commissioner went on to suggest the agency’s creation of SAB 121 could qualify as regulatory overreach, noting that the Government Accountability Office (GAO) ruled that the SEC should have submitted the accounting bulletin to Congress.

“To make matters worse, OCA issued—orally at a conference of accountants—a multi-pronged framework for applying SAB 121 to broker-dealers,” Peirce continued. “The Commission has not published that framework or any subsequent staff efforts to clarify the framework’s scope, but many auditors and broker-dealers are treating it as binding.”

The SEC is a regulatory agency with an enforcement division, not an enforcement agency. Why are we leading with enforcement in crypto?

— Hester Peirce (@HesterPeirce) May 3, 2022

Peirce expressed that the accounting bulletin has wide-ranging effects stemming from “driving broker-dealers to allocate significant capital to their crypto custody businesses” or simply avoiding “the business altogether.”

Heavy Regulations Are “Scary People Off”

The SEC has long been scrutinized for its regulation-by-enforcement approach under Chair Gary Gensler, which has seen a number of key players across the crypto industry hit by litigation from the federal agency, including Kraken, Coinbase and Ripple.

Peirce seemingly chided the agency’s direction under Gensler, claiming that the heavy-handed enforcement strategy may be doing more harm than good by “scaring people off” to having discussions about regulation

“The Commission’s announcement of a large ramp-up in its cyber-and crypto-enforcement unit, repeated assertions that the crypto industry is lawless, and treatment of cyber-incidents as fertile ground for enforcement actions add to these fears,” she continued.

Peirce’s comments mark the latest development in the emerging world of crypto regulation and may signal greater overall dissatisfaction with the direction the SEC is heading in by its own employees.

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