SEC Chair Gary Gensler has assured Congress during a congressional testimony that the Staff Accounting Bulletin (SAB) 121 will continue to be operational. He mentioned FTX and Celsius as examples of the biggest crypto-related bankruptcy cases as the reason for the rule.
Gensler pointed to the SAB 121 rules as critical to prevent investors from exposure to risks connected to digital assets. According to Gensler, this was because SAB 121 was crafted to respond to new risks identified in the cryptocurrency sector.
Wiley Nickel, a member of Congress who has been particularly critical of the rule, accused the SEC of overreaching. He asked Gensler how the rule has hurt the economy and impacted so many crypto-friendly companies.
Gensler Defends Crypto Custody Regulation Firmly
Rep Wiley Nickel raised concern regarding the matter of SAB 121 to the crypto custodians and other financial institutions. He said the SEC’s ignoring his office’s repeated requests showed that the agency had overstepped its bounds.
Nickel questioned Gensler if he had any remorse for the rule that had been a blow to the crypto industry. Gensler retorted that the rule is important as it ensures companies offering crypto custody services are always held accountable.
He said that accounting practices require a more rigorous set of rules regarding digital assets since they come with a new set of risks to the accounting system. Nevertheless, Gensler continued to support the bulletin and defended it against critics.
Nickel also noted that the SEC’s application of SAB 121 is inconsistent. He noted that the regulator allowed big companies like BNY Mellon to avoid the rule and provide crypto custody services with fewer requirements. Specifically, critics within the crypto industry have dubbed such action ‘unethical’ and ‘hurtful’ to small investors.
Gary Gensler Faces Allegations of Stifling Crypto Innovation
While on the witness stand, Congressman Tom Emmer criticized Gensler for killing innovation in the crypto space through excessive regulation. Emmer also pointed to Gensler’s use of the term “crypto asset security,” stating that Emmer’s legal team could not find a definition for this term.
He said that the SEC Chair had coined the phrase to endorse his idea of regulation. Emmer claimed that Gensler is not consistent with the rules he sets for the development of the crypto industry.
He also accused the SEC of regulating by enforcement rather than offering direction. Gensler supported the SEC’s decision saying that it falls under the purview of the agency to safeguard investors and maintain market integrity.
The congressman also mentioned the Debt Box case in which the SEC’s suit was dismissed. This, he said, was clear from the court ruling that ordered the SEC to cough up $1.8 million in fees as evidence of mismanagement. Gensler said that the agency erred in the case, it accepted the court’s decision, but there was no clear reason for the wrongdoing.
SAB 121 Criticized for Stifling Small Firms
Some critics have said that SAB 121 was particularly damaging to small firms and so-called crypto companies as it restricted their ability to compete. The rule mandates that financial institutions disclose their custodial assets, which has been a costly exercise for the smaller players.
Others, like BNY Mellon, have been excluded, claiming exemptions, which has been seen as unfair. Critics of SAB 121 include top figures in the crypto industry, who have claimed that the bill is anti-competitive.
They argue that the rule has made many firms cease operations while big banks can still increase their crypto products. The partiality of the exemptions given to key market players has amplified the anger of the remaining stakeholders.
