Peirce Calls Latest SEC Crypto Proposal Unworkable and Outside its Jurisdiction

U.S. Securities and Exchange Commissioner Hester Peirce, aka the “crypto mom,” isn’t happy with the direction SEC Chair Gary Gensler wants to take the agency. In a formal statement published Wednesday she questioned Gensler’s proposal.

My statement on today's custody proposal. Looking forward to comments from the public. This one affects crypto, among many other issues: https://t.co/1eWT6P45Ya — Hester Peirce (@HesterPeirce) February 15, 2023

She says Gensler’s proposal isn’t workable or within the agency’s jurisdiction.

“This rule has broad implications for investors, investment advisers, and custodians,” Peirce wrote. “To get it right, we need the thoughtful input of commenters.”

We @SECGov just proposed to expand & enhance the role of qualified custodians when registered investment advisers custody assets on behalf of investors. Thru our rule, investors would get the time-tested protections—and qualified custodians—they deserve. What does this mean? ⬇️ pic.twitter.com/RerUGnpArI — Gary Gensler (@GaryGensler) February 15, 2023

According to Decrypt:

“This rule will require a lot of work, and a year seems too short to accomplish all of it,” Peirce said. “I appreciate the extended time for smaller advisers, but even eighteen months seems like an aggressive timeline for the changes contemplated here.”

Next, the SEC commissioner questioned the rule’s workability, saying that getting custodians to enter into written agreements to provide the required “reasonable assurances” may be difficult for advisers and costly for clients.

“The Commission “acknowledge[s] that an agreement between the custodian and the adviser would be a substantial departure from current industry practice,” she wrote, going on to say the proposal would expand the reach of custody requirements to include crypto assets while also shrinking the ranks of qualified crypto custodians.

Peirce went on to say that Gensler’s proposal runs the risk of “causing investors to remove their assets from an entity that has developed safeguarding procedures for those assets, possibly putting those assets at a greater risk of loss,” This would make customer assets more vulnerable to theft or fraud, not less, she wrote, citing language from the agency’s proposal.