SEC SAB 121 Crypto Rule on Custodian Liabilities Repealed by US House
In a remarkable display of bipartisan unity, the U.S. House of Representatives has given its approval to a resolution that challenges a controversial rule by the Securities and Exchange Commission (SEC). This rule, which mandates cryptocurrency custodians to classify customer holdings as liabilities, has sparked intense debate within both financial circles and the digital asset community.
The passage of this resolution highlights the growing divide between regulatory policies and the ever-evolving nature of digital assets. Republicans and a significant number of Democrats have joined forces to contest the SEC’s Staff Accounting Bulletin No. 121 (SAB 121), which was issued in 2022.
SAB 121 requires financial institutions that hold cryptocurrencies on behalf of clients to categorize these holdings as liabilities. Many in the crypto industry have criticized this move as excessively burdensome. The bipartisan consensus against this regulation resulted in a definitive 228-182 vote in favor of the resolution in the House.
Republican Chairman of the House Financial Services Committee, Patrick McHenry, criticized the SEC’s approach, calling SAB 121 a clear example of regulatory overreach under the leadership of Gary Gensler. McHenry argued that the rule encroaches on firms’ autonomy in safeguarding digital assets. He stated, “Staff Accounting Bulletin, or SAB, 121 is one of the most glaring examples of the regulatory overreach that has defined Gary Gensler’s tenure at the SEC. Through SAB 121, the Commission is trying to dictate how financial institutions and firms safeguard Americans’ digital assets under the guise of so-called staff guidance.”
On the other side of the argument, Democrat Representative Maxine Waters defended the SEC’s stance, emphasizing the importance of transparency and consumer protection in the cryptocurrency sphere. Waters cited instances of crypto firm collapses as evidence of the necessity of regulatory oversight.
The future of the resolution in the Senate remains uncertain, despite the rare bipartisan agreement in the House. The White House has already expressed its opposition, with President Biden prepared to use his veto power if the resolution passes. Concerns have been raised about the potential consequences of overturning SAB 121, including increased market volatility and financial instability.
However, amidst the political turmoil, Senator Cynthia Lummis has emerged as a beacon of hope for the digital asset community. Lummis introduced a companion measure in the Senate, indicating ongoing efforts to reshape crypto regulation in a more favorable manner.
Cody Carbone, Vice President of Policy at the Chamber of Digital Commerce, commended the House’s decision as a positive step forward. However, he expressed disappointment at the prospect of a presidential veto, highlighting the industry’s concerns about the stifling impact of regulatory constraints.
The resolution’s outcome is uncertain, and it remains to be seen whether it will be a victory for the crypto industry or a risky move. What are your thoughts on this matter?