SEC Chairman Gary Gensler testified before the House Financial Services Committee on September 27, where he spent over four hours addressing various concerns and criticisms. One of the key points of contention was the SEC's Staff Accounting Bulletin (SAB) 121, issued in March 2022, which deals with the accounting and disclosure of crypto assets held by publicly traded companies.
Representative Mike Flood questioned Gensler about whether the SEC had consulted with prudential regulators before issuing SAB 121. Flood also noted that the Financial Accounting Standards Board (FASB), a private organization that publishes standards related to Generally Accepted Accounting Principles (GAAP), had not released any guidelines on digital asset custody until after SAB 121 was issued.
Gensler defended SAB 121, stating that it provides guidance on the application of existing SEC rules. He mentioned that there have been regulations governing the custody of digital assets by investment advisers since 2009 and referred to a rule enacted by the SEC in April 2021 regarding special purpose broker-dealers.
Flood countered that there are no SEC rules directly addressing digital asset custody, and while rulemaking was proposed in February 2023, it has not been finalized. He argued that either the SEC knew there was no strong reason to issue the guidance in SAB 121 and did so anyway, or it made a mistake in doing so.
SAB 121 requires disclosure of the technical, legal, and regulatory risks associated with the custody of digital assets and has faced opposition since its release. Several senators and committee members have expressed concerns about its impact on cryptocurrency holders and the industry.
Additionally, during the hearing, Gensler was questioned about the approval process for spot Bitcoin exchange-traded funds (ETFs) and the order in which they would be considered. He also faced criticism from Representative Tom Emmer for perceived unfairness in his approach to the financial industry, and Representative Rich Torres asked about the interpretation of the Howey test.
Overall, the hearing covered various aspects of cryptocurrency regulation and oversight, with committee members expressing differing viewpoints and concerns.
