During a Financial Services Committee oversight hearing on the U.S. Securities and Exchange Commission (SEC), Commissioner Hester Peirce expressed concerns over how the agency is approaching digital assets like non-fungible tokens (NFTs). Congressman William Timmons questioned Peirce about whether physical pieces of art are considered securities, to which she responded that they are not.
Hester Peirce’s Opinion NFT Classification as Securities
Timmons then raised concerns about the potential for overreach by the SEC in its handling of NFTs in the crypto domain. He stated, “I’m concerned that this is just an extremely slippery slope. If the SEC takes a position that most NFTs are sold as securities, where does it end?”
During the oversight hearing, Peirce acknowledged the validity of his concerns, responding:
“You put your finger on something that’s troubled me, which is that we seem to be treating digital assets differently than we treat physical assets, and I think that’s problematic.”
The discussion comes in the wake of the SEC issuing a Wells Notice to OpenSea, a leading NFT marketplace, on August 28, 2024, for the alleged unregistered sale of securities in the form of NFTs. This marks one of the most high-profile enforcement actions by the agency in the crypto industry.
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Commissioner Mark T. Uyeda also voiced his reservations about the SEC’s current approach to NFTs, saying, “There is no limiting principle based on what you might discern from the Commission’s enforcement actions. I have strong reservations whether that’s consistent with the law.”
SAB 121 Rule Grabs Spotlight
In addition to the NFT discussion, Peirce faced questions from U.S. Rep. Mike Flood about SAB 121, a staff accounting bulletin that has caused challenges for crypto custodians. Flood questioned the agency’s decision to exempt certain institutions from the SAB 121 rule.
He asked, “What kind of signal does it send when the SEC is carving out individual firms from its own staff accounting guidance on a one-off basis?” Peirce acknowledged the issue, stating:
“There was a question earlier about why there’s only one custodian in the ETP space, and one of the reasons is because of our SAB 121 which makes it very hard for people to be custodians in this space.” She also noted that market concentration is a real risk stemming from the accounting bulletin.
She added, “The accounting raises real questions about whether this is protective of investors or not. And so that’s why I think we need to go out with a real process to try to figure this out.”
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Also Read: SEC Chair Gary Gensler Dodges Token vs. Securities Debate, McHenry Fumes
