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SEC Commissioner Hester Peirce has publicly criticized Staff Accounting Bulletin 121 (SAB 121), calling it an overreaching regulatory measure that restricts traditional financial institutions from offering crypto custody services.
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Peirce argues that SAB 121, never formally adopted through proper rulemaking, limits competition and innovation by excluding experienced custodians from the crypto market.
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According to Peirce, “We want to have as broad a pool as possible of potential custodians. That’s what’s best for the safety of people’s assets,” emphasizing the need for inclusive custody frameworks.
SEC’s Hester Peirce challenges SAB 121’s restrictive crypto custody stance, advocating for broader access to custodians to enhance asset safety and market innovation.
SEC Commissioner Hester Peirce’s Critique of SAB 121 and Its Impact on Crypto Custody
In a recent statement, SEC Commissioner Hester Peirce highlighted significant concerns regarding Staff Accounting Bulletin 121 (SAB 121), which she describes as an informal pronouncement rather than a formally enacted regulation. Peirce underscored that SAB 121 effectively bars many traditional financial institutions from providing cryptocurrency custody services, despite their extensive experience managing conventional assets. This exclusionary stance, she argues, stifles competition and innovation within the crypto custody sector, limiting the diversity of custodial options available to investors.
The Regulatory Overreach of SAB 121 and Its Consequences for Financial Institutions
Peirce’s critique centers on the fact that SAB 121 was never subjected to the rigorous rulemaking process typically required for regulatory policies. As a result, it functions more as a restrictive guideline than an enforceable rule, creating ambiguity and operational challenges for traditional custodians interested in entering the crypto space. By effectively disqualifying these entities, SAB 121 narrows the pool of qualified custodians, which could inadvertently increase systemic risk by concentrating custody services among fewer providers.
Advocating for Broader Custody Access to Enhance Investor Protection
Commissioner Peirce advocates for the repeal of SAB 121 to enable a wider array of custodians, including both traditional financial institutions and crypto-native firms, to participate in crypto asset custody. She emphasizes that expanding custody access is crucial for safeguarding investors’ assets, as a diverse custodian ecosystem promotes competitive practices and resilience against operational failures. This approach aligns with broader regulatory discussions in Washington focused on balancing innovation with investor protection in the evolving crypto landscape.
Implications for the Future of Crypto Custody Regulation
The push to reconsider SAB 121 emerges amid ongoing debates about regulatory frameworks governing crypto custody, particularly concerning banking access and capital requirements. Peirce’s stance signals a potential shift toward more inclusive policies that recognize the unique challenges and opportunities presented by digital assets. By fostering collaboration between regulators and market participants, there is an opportunity to develop custody standards that enhance transparency, security, and market integrity.
Conclusion
Hester Peirce’s criticism of SAB 121 highlights a pivotal moment in crypto regulation, where the balance between safeguarding investors and encouraging innovation is under scrutiny. Her call to broaden custody access reflects a pragmatic approach aimed at leveraging the expertise of traditional financial institutions while supporting the growth of crypto-native custodians. As regulatory frameworks evolve, stakeholders should monitor these developments closely, as they will shape the infrastructure and security of crypto asset custody in the years ahead.
