• Entities, such as crypto exchanges and custodians, should include clear disclosure over how many digital assets they hold and what is done with them
  • SEC Commissioner Hester Pierce said the staff bulletin is a “scattershot and inefficient approach” to crypto

Members of the US Securities and Exchange Commission (SEC) penned a bulletin Thursday outlining what they view as particularly troublesome for the current accounting obligations within the crypto industry.

SEC staff said they believed entities should present a liability on their balance sheet to reflect their obligation to safeguard digital assets held for their platform users.

Staff Accounting Bulletin Number 121 (SAB 121) expresses the staff’s views and adds “interpretive” guidance for entities to consider when they have obligations to safeguard digital assets.

Entities such as crypto exchanges and custodians — who are charged with maintaining cryptographic keys of their users — face several risks when storing digital assets on behalf of their customers, SEC staff said.

Commentary from SEC staff follows one of the industry’s largest hacks in history, when an Ethereum-linked sidechain — utilized by blockchain game Axie Infinity — was exploited for $625 million in ether and USDC last week. Exploiters used hacked private keys to forge withdrawals on March 23.

“The obligations associated with these arrangements involve unique risks and uncertainties not present in arrangements to safeguard assets that are not crypto-assets.” Those legal, technological and regulatory risks can have a “significant impact” on the entity’s operations and financial condition, they said.

Statements in staff accounting bulletins are not rules or interpretations of the SEC and simply represent the staff’s own interpretations and practices of federal securities laws.

The staff believes notes accompanying financial statements should include “clear disclosure” of the nature and amount of crypto that an entity is responsible for holding on behalf of its users.

Staff are also guiding entities to form separate disclosures for each significant crypto asset as well as notifying the SEC of any vulnerabilities they may have due to “any concentration in such activities.”

SEC Commissioner Hester Pierce, affectionately known as “Crypto Mom” within the community, shot back Thursday, calling the staff’s bulletin a “scattershot and inefficient approach to crypto.”

“My concern is not with the accounting determination itself, which may be appropriate, but with the way the change is being made,” Pierce said.

“A staff accounting bulletin may not be the appropriate vehicle through which to make this accounting change and communicate it to the public.”

Pierce also said SAB 121 is “unusual” among bulletins because of its targeted guidance aimed at a “very specific, very limited” number of public companies.

“While past SABs have included statements suggesting companies should consider the applicability of other disclosure requirements outside of the financial statements, SAB 121’s granular guidance is unique,” Pierce said. “If we are trying to encourage companies to enter our public markets, we ought to embrace a more deliberate approach to changing rules — one that involves consulting with affected parties.”


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  • Blockworks
    Senior Reporter, Asia News Desk
    Sebastian Sinclair is a senior news reporter for Blockworks operating in South East Asia. He has experience covering the crypto market as well as certain developments affecting the industry including regulation, business and M&As. He currently holds no cryptocurrencies. Contact Sebastian via email at [email protected]