On September 27, Gensler faced the music for the SEC’s policies and actions, receiving more than his share of criticism during a four-hour grilling.
While a plethora of topics surfaced, the crux of the dissatisfaction was apparent in Representative Mike Flood’s interrogation.
Regulations without Grounds?
Representative Mike Flood shone a spotlight on the SEC’s Staff Accounting Bulletin (SAB) 121, a document released in March 2022.
This bulletin addresses the accounting and disclosure protocols for crypto assets held in custody by public powerhouses like Robinhood and Coinbase.
Flood’s line of questioning revealed some cracks in the SEC’s armor. Despite Gensler’s prior claims, it came to light that before publishing the SAB, the SEC had skipped consulting with prudential regulators.
Even the Financial Accounting Standards Board (FASB), renowned for its standards concerning Generally Accepted Accounting Principles, hadn’t made any declarations on digital asset custody at the time.
It’s evident the FASB only moved digital assets accounting standards to its to-do list two months after the SAB 121 publication.
Flood went further to prod Gensler on the SEC’s guiding lights behind the issuance of the bulletin. Although Gensler pointed to a 2009 rule concerning the custody of digital assets and an April 2021 SEC ruling, Flood wasn’t convinced.
To Flood, there were no pre-existing SEC rules that directly tackled the topic at hand. The aftermath of this revelation was clear: Flood concluded that the SEC either mistakenly issued the bulletin or, worse, did it knowingly without ample justification.
Disguised Regulations and Controversies
From the get-go, SAB 121 faced staunch resistance. It mandates the disclosure of multiple risks linked with custodying digital assets, from technological to legal aspects. Notably, SEC commissioner Hester Peirce was openly skeptical.
Additionally, a group of five senators, with crypto enthusiast Cynthia Lummis at the helm, expressed their displeasure with the bulletin. They reached out to Gensler, asserting that SAB 121 felt more like concealed regulations rather than mere staff guidance.
Lummis, along with committee chair Patrick McHenry, emphasized in another communique that this bulletin, instead of ensuring safety, posed higher risks for crypto holders.
In the backdrop of this controversy, a call for Gensler to greenlight spot Bitcoin exchange-traded funds was loud and clear. A letter penned by four Financial Services Committee members, including Flood, had underscored this demand.
Though the topic didn’t become a significant part of the hearing, Gensler’s comments regarding Grayscale’s appeal against the SEC’s rejection of its Bitcoin ETF application did stir the pot.
Committee member Warren Davidson voiced his unease about the SEC’s potential biased treatment concerning spot Bitcoin applications, given the Grayscale episode.
Allegations of Impartiality
To add fuel to the fire, Emmer alleged that Gensler wasn’t exercising impartiality in the financial industry. Emmer’s sentiments were echoed by Torres, who took Gensler to task over the interpretation of the Howey test, pushing the SEC chief further into the hot seat.
While the hearing might have concluded, the repercussions and murmurs are far from over. It’s a testament to the ever-evolving, high-stakes world of cryptocurrency and the regulators tasked with overseeing it.
As the dust settles, all eyes will remain on the SEC, awaiting its next move in the crypto chess game.
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