House Takes Action Against SEC’s SAB 121, Resulting in Reversal of Crypto Regulation
In a significant bipartisan move, the U.S. House of Representatives has passed a resolution aiming to reverse a Securities and Exchange Commission (SEC) rule that requires cryptocurrency custodians to treat customer holdings as liabilities. This legislative action highlights the growing tension between regulatory frameworks and the rapidly evolving landscape of digital assets.
The resolution received support from both Republicans and a substantial number of Democrats, challenging the SEC’s Staff Accounting Bulletin No. 121 (SAB 121), which was initially issued in 2022. SAB 121 mandates financial institutions to consider cryptocurrency holdings as liabilities when held on behalf of customers. Critics argue that this regulation places an excessive financial burden on these institutions.
Remarkably, the resolution achieved bipartisan agreement, with the House passing it by a vote of 228-182. Republican Patrick McHenry, Chairman of the House Financial Services Committee, criticized the SEC’s approach, stating that SAB 121 exemplifies regulatory overreach under Gary Gensler’s leadership. McHenry argues that the Commission is attempting to dictate how financial institutions safeguard Americans’ digital assets under the guise of staff guidance.
On the other hand, Democrat Representative Maxine Waters defended the SEC’s regulation, emphasizing that SAB 121 aims to ensure transparency in crypto institutions and protect consumers from fraud, citing high-profile collapses of crypto firms as examples.
The resolution now moves to the Senate following the rare bipartisan agreement. However, its future remains uncertain. The White House has expressed opposition, and if the resolution passes the Senate, President Biden is expected to veto it. The administration is concerned that revoking SAB 121 could lead to increased financial instability and market uncertainty in an already volatile U.S. market.
Despite the potential veto, Senator Cynthia Lummis, a prominent advocate for the digital asset sector, introduced a companion measure in the Senate, indicating ongoing legislative efforts to reshape the management and regulation of digital assets.
Cody Carbone, Vice President of Policy at the Chamber of Digital Commerce, represented the voices of the digital commerce industry in the House, expressing optimism towards the resolutions against SAB 121. However, Carbone expressed disappointment in the possible presidential veto, stating, “Disappointed that President Biden issued a Statement of Administration Policy saying he would veto H.J. Res 109, the Joint Resolution to nullify the SEC’s Staff Accounting Bulletin (SAB) 121.”
The House’s decision to overturn the SEC’s crypto custody rule marks a significant turning point in the ongoing debate on regulation and innovation in the digital asset space. If the resolution progresses to the Senate, it will have a profound impact on the operational environment of financial institutions dealing with cryptocurrencies and the overall market stability.