U.S. Securities and Exchange Commission (SEC) Commissioner Hester Peirce criticizes the agency for making little public engagement. During a speech, Peirce says that those who approach the securities watchdog with their concerns more often fail to get the response that they need.
“Productive interactions with the SEC are fewer and further between than they were in the past. When individuals and entities come to the SEC with their novel ideas, their feedback, their concerns, their objections, their questions about the implementation of a new rule or application of an old one to new circumstances, too often now they are met with… well, crickets.”
Peirce says the SEC has adopted practices that prevent its staff from engaging in helpful discussions with the public.
“The root of the problem, though, is that the Commission discourages the staff from offering much more than silence, shrugs, sighs, and slow-walking. The culture at the top of the SEC has changed, which in turn has changed the way the agency interacts with the public.”
The commissioner says there are even concerns that meeting with the SEC is not only unproductive but also inadvisable. She says the regulator’s view that crypto is lawless fuels fear that discussions with the agency may lead to enforcement actions.
“Other people have told me that they are less inclined now than in the past to keep us updated during times of market stress because they fear subsequent rulemaking based on the fact that those conversations occurred. We are scaring people off from coming in and having a conversation with us.”
Critique of SAB 121
In a speech given at the Practicing Law Institute’s SEC Speaks event Tuesday, Peirce called out the controversial Staff Accounting Bill 121. SAB 121, which under securities law is not an official rule, states that crypto custodians should report a liability and “corresponding assets” on their balance sheets.
“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,” Peirce said. “It is driving broker-dealers to allocate significant capital to their crypto custody businesses or to avoid the business altogether.”
SAB 121 is intended to guard against the “significant risks and uncertainties associated with safeguarding crypto assets.” SEC staff said.
Congress has also taken note of the guidance. Earlier this year, the Government Accountability Office (GAO) found that the SEC had failed to follow the Congressional Review Act (CRA) when it issued SAB 121. The SEC later countered that SABs are not subject to following CRA since they are not official rules.
Peirce also offered advice to market participants, who she said are growing increasingly frustrated with the “secret garden”—the maze of staff guidance that serves to define practices across the securities industry in a way that may be inconsistent with a plain reading of the rulebook.
“Countless people have told me that they used to feel comfortable coming in and speaking with the Commission and its staff, but no more,” Peirce added.
Those looking to “nudge the SEC in the right direction” should continue to engage with the Commission, Peirce said, recommending that businesses and company leaders keep a record of all SEC meetings, come prepared with an agenda and supporting materials and coordinate messages with others across the industry, when possible.
“Do not be a stranger and do not give up,” Peirce said. “Carefully consider what the staff is saying. If you do not see a strong legal justification for stopping your idea, do not give up.”
Conclusion
Commissioner Peirce’s remarks shed light on a troubling trend at the SEC: a lack of public engagement and responsiveness. The agency’s reluctance to encourage open dialogue inhibits constructive exchanges with market participants, stifling innovation and regulatory clarity. Additionally, concerns surrounding the SEC’s handling of crypto-related issues, exemplified by SAB 121, highlight the need for transparency and accountability in regulatory actions. Peirce’s call for continued engagement and persistence reflects a desire to bridge the gap between regulators and the industry, emphasizing the importance of collaboration in shaping effective and equitable regulatory frameworks.
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