New SEC guidance on accounting and disclosures rankles Commissioner Peirce
Peirce, sometimes referred to as the Crypto Mom, found the new guidance to be an example of the SECâs âscattershot and inefficient approach to crypto.â
U.S. companies that safeguard their clientsâ crypto-assets received new accounting guidance Thursday in the form of a Securities and Exchange Commission, or SEC, Staff Accounting Bulletin. The guidance got a strong response from SEC commissioner Hester Peirce, a steadfast crypto advocate.
Staff Accounting Bulletin 121 noted the high technological, legal and regulatory risks associated with the custody of crypto-assets, relative to traditional assets. Those risks impact the operations and financial condition of companies such as Coinbase, PayPal and Robinhood, which safeguard usersâ crypto-assets and allow the users to trade them on their platforms. For this reason, companies are advised to list their usersâ assets on their books as liabilities as well as assets at their fair value at initial recognition.
In addition, the bulletin advised companies on disclosing the risks from crypto-assets and reminds them of existing rules on disclosure.
Commissioner Peirce released a response to the bulletin the same day. She wrote, âMy concern is not with the accounting determination itself, which may be appropriate, but with the way the change is being made,â which she characterized asÂ
âYet another manifestation of the Securities and Exchange Commissionâs scattershot and inefficient approach to crypto.â
Peirceâs first objection to the bulletin was its timing, since the bulletin cites an October 2020 Report of the Attorney General, which in turn cites information from 2018. SEC staff has been reviewing statements provided by the companies in question the whole time since the 2020 report, Peirce noted.
Commissioner Peirce also pointed out that the bulletin âdoes not acknowledge the Commissionâs own role in creating the legal and regulatory risks that justify this accounting treatmentâ by not providing regulatory and legal clarity. Recognizing its own role in the problem âwould be appropriate,â Peirce said.
She noted that the guidance is narrowly targeted and highly specific, and it reads as though the guidance were enforceable. But, as a staff statement, the bulletin is not enforceable. âIf we are trying to encourage companies to enter our public markets, we ought to embrace a more deliberate approach to changing rulesâone that involves consulting with affected parties,â Peirce concluded.