Gary Gensler, chairman of the US Securities and Exchange Commission (SEC), faced criticism during a recent House Financial Services Committee hearing. One of the main points of contention was the SEC’s issuance of Staff Accounting Bulletin (SAB) 121 in March 2022. Representative Mike Flood questioned Gensler about the lack of consultation with prudential regulators and the Financial Accounting Standards Board (FASB) before publishing the SAB. Gensler acknowledged that there were no SEC rules specifically addressing the custody of digital assets at the time the bulletin was issued.
Flood pointed out that the justification for issuing the SAB was based on accounting guidelines that did not exist when it was published. This raised concerns about whether the SEC knew there was insufficient justification or had made an error in issuing the guidance. The SAB, which requires disclosure of risks associated with custodying digital assets, has faced opposition since its release. SEC commissioner Hester Peirce and several senators have raised objections to the bulletin, criticizing it as disguised regulation.
In addition to the SAB discussion, other topics were addressed during the hearing. Gensler stated that the SEC is still considering the Grayscale case following the company’s successful appeal against the SEC’s rejection of its Bitcoin exchange-traded fund (ETF) application. There were also criticisms of Gensler’s impartiality within the financial industry and discussions about the interpretation of the Howey test, a legal test used to determine whether a financial instrument qualifies as a security.