Gary Gensler, chairman of the United States Securities and Exchange Commission, told the House Financial Services Committee hearing on Sept. 27 that he enjoys testifying before the committee. He had well over four hours of that pleasure that day, much of which was devoted to criticism of his agency’s policies and actions.
Among the long list of discontents, one of the most narrowly focused was Representative Mike Flood’s questioning regarding the SEC’s Staff Accounting Bulletin (SAB) 121, issued in March 2022. The SAB concerned accounting and disclosure of crypto assets in the custody of public companies such as banks and platforms like Robinhood and Coinbase.
Flood confirmed Gensler’s previous testimony to the committee that the SEC did not confer with prudential regulators before publishing the SAB. Nor had the Financial Accounting Standards Board (FASB), a private body that issues standards relating to Generally Accepted Accounting Principles (GAAP), issued anything related to digital asset custody, Flood continued. Rather, the FASB added digital assets accounting standards to its agenda in May 2022, after the publication of SAB 121.
Gensler said in a previous hearing that SAB 121 provides guidance on applying existing requirements under SEC rules, Flood reminded him. What requirements were there, Flood asked. Gensler replied that there is a rule from 2009 on the custody of digital assets by investment advisers, and the agency had “finalized something around special purpose broker-dealers,” Gensler replied. He was apparently referring to an SEC rule made in April 2021.
“There were no SEC rules on the books that directly addressed the topic of custody of digital assets,” Flood replied. A rulemaking on custody, including digital asset custody, was proposed in February 2023 and has not yet been finalized, he added, concluding:
“At the time when the bulletin was issued, there was no action by FASB, nor rulemaking by the SEC on this topic. […] The SEC’s justification for issuing the bulletin is based on accounting guidelines that did not exist when the bulletin was issued.”
Either the SEC knew there was no “strong” justification for issuing the guidance in the bulletin and did so any way, or it did so in error, Flood said.
SAB 121 requires the disclosure of technological, legal and regulatory risks associated with custodying digital assets. It met with opposition from the start. SEC commissioner Hester Peirce released a critical response on the day it was issued. Five senators, including crypto advocate Cynthia Lummis, sent a letter Gensler in June calling the SAB “regulation disguised as staff guidance.” Lummis and committee chair Patrick McHenry sent another letter to prudential regulators in March arguing that the SAB places the interests of crypto holders at greater risk than before it was issued.
Four Financial Services Committee members – Flood, Wiley Nickel, Tom Emmer and Ritchie Torres – sent Gensler a letter a day earlier calling for him to approve spot Bitcoin exchange-traded funds. That topic was not pursued very closely in the hearing.
Summary of the 3 hr+ @FinancialCmte Oversight of the SEC hearing w/ @GaryGensler: (paraphrasing) – I don’t answer Yes / No questions – I’ll get back to you following my staff’s guidance – We’re protecting the American public – We’re not changing anything for crypto; current laws… pic.twitter.com/R7Yj4SBNHL
Gensler told Nickel that the SEC is “still under advisement” on Grayscale case after the company won an appeal against the SEC’s decision to reject its Bitcoin ETF application. Committee member Warren Davidson expressed his concern that the SEC would not approve spot Bitcoin applications in the order they were received, in light of the Grayscale decision. Gensler replied that the applications were still under “active consideration.”
Emmer criticized Gensler alleging he was not impartial within the financial industry. Torres engaged Gensler over the interpretation of the Howey test.
Bitfinex CTO Paolo Ardoino explained that if the hacking group was telling the truth, they would have asked for a ransom, but he “couldn’t find any request.”
The symbolism of Labour taking the West Midlands mayor, a jewel in the Tory crown, could be felt in the room as Labour activists gathered in Birmingham to celebrate the win with their new mayor Richard Parker and Labour leader Sir Keir Starmer.
There are moments on election journeys when the momentum shifts – and this win felt like one of them.
“We humbly asked [the voters] to put their trust and confidence in a changed Labour Party and they did. And that is a significant piece of political history that we’ve made here today,” said Sir Keir at his victory rally.
“So the message out of these elections, the last now the last stop before we go into that general election, is that the country wants change.
“I hope the prime minister is listening and gives the opportunity to the country to vote as a whole in a general election as soon as possible.”
This win gave them the boost that was missing when they won the Blackpool South by-election on a massive 26-point swing, but then failed to pick up the hundreds of council seats they were chasing.
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This win, on just 1,508 votes or 0.25 per cent of the vote, was a body blow for a Conservative party that believed they could just about cling on. Ben Houchen, the Tees Valley mayor, is now the last Tory standing.
For Labour, then a moment to bookmark.
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Just as Boris Johnson’s Hartlepool by-election win in 2021 was a low point for Sir Keir – he told me this week that he considered resigning over the loss because he thought it showed he was the barrier to Labour’s recovery – this too will feel devastating not just for Andy Street but for the PM too.
Labour has beaten him in a street fight. He’s bloodied with Sir Keir now emboldened.
“This was the one result we really needed,” said one senior Labour figure. “It’s been our top focus for the past week and symbolically a very important win.”
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Analysis of local election and mayoral results
And Labour needed the boost, because, as Professor Michael Thrasher pointed out in his Sky News’ national vote share projection calculated from the local election results, Sir Keir was not picking up the sort of vote share that Tony Blair was winning in the run-up to the 1997 Labour landslide.
His latest calculation of a 35% vote share for Labour and 26% for the Tories, put Sir Keir winning a general election but short of a majority.
What the West Midlands mayoral win did for Sir Keir was to give him a clear narrative that he is coming for the Tories and will do what he needs to take them down.
It raises inevitable questions about what is next for Rishi Sunak. The prime minister had nowhere to go today, not one win to celebrate. The worst performance in council elections in 40 years, was already pretty much as bad as it gets before the loss of Andy Street. The former Conservative mayor was magnanimous towards the prime minister, saying the loss was his alone.
But colleagues will not be so generous. One former cabinet minister said this loss was “devastating”. “We’re done and there’s no appetite to move against him,” said the senior MP. Many Tories tell me they are now resigned to defeat and believe Mr Sunak and his team needed to own it, rather than the rest of the party.
The coming days might be bumpy, the mood will be stony. But Tories tell me not much will actually change for them.
For Sir Keir, he now needs to sell not the changed Labour Party, but his vision for changing the country. The West Mids mayor’s win was dazzling, but it could have so easily gone the other way. And as Mr Sunak fights to survive, Labour still has to fight hard to win.