The House Financial Services Committee recently voted to advance a resolution that might overturn the controversial Staff Accounting Bulletin No. 121. Over the years, regulators and authorities globally have tried to create laws to govern the nascent space. However, some laws and regulations have been detrimental to the crypto sector, compelling regulators to overturn them.
On that note, the United States House Financial Services Committee (HSFC) voted in favor of a resolution that aims to overturn a U.S. Securities and Exchange Commission guideline that has now prevented banks from getting in on crypto custody.
In a Feb. 29 markup hearing, 31 HSFC members from all sides of the political aisle voted in favor of the resolution, with only 20 members voting against it. The House Financial Services Committee insisted in a statement:
“By overturning SAB 121, the Resolution will ensure consumers are protected by removing roadblocks that prevent highly regulated banks from acting as custodians of digital assets.”
The Securities and Exchange Commission’s (SEC’s) Staff Accounting Bulletin No. 121, written and introduced in March 2022, is a set of guidelines that need institutions that custody crypto assets to record crypto holdings as liabilities on their balance sheets.
The Law Is Unfair For Banks
Republican Congressperson Mike Flood, the legislator who wrote and introduced this resolution, stated that the SAB 121 was unfair for the banks seeking to custody crypto, as custodial assets are “always considered off-balance sheet,” which features securities and digital assets, such as Bitcoin (BTC).
“The ramifications of requiring banks to hold these assets on-balance sheet are pretty significant.”
Flood also commented:
“If a bank were to custody digital assets according to the parameters of SAB 121, the on-balance sheet treatment would affect their other regulatory obligations like their capital and liquidity requirements.”
This resolution was introduced on February 1 by Flood and Democrat Representative Wiley Nickel, who stated that SAB 121 went “beyond the scope of an accounting bulletin” and had managed to effectively become a de facto law.
Interestingly, the resolution still requires to pass a full floor vote in the House and the Senate before SAB 121 is thrown out.
There is bipartisan agreement SAB 121 undermines consumer protection and leaves customers' digital assets vulnerable.
I look forward to getting this measure across the finish line to overturn it.
— Patrick McHenry (@PatrickMcHenry) February 1, 2024
While speaking at the markup hearing, crypto-friendly Republican Congressperson Tom Emmer stated that SAB 121 was an “illegal” example of SEC Char Gary Gensler’s “unrelenting prejudice towards the digital asset ecosystem.”
Emmer stated that SAB 121 introduced “unnecessary and avoidable” concentration risk into the cryptocurrency network. He also commented:
“The Bitcoin ETFs are a great example. Not a single bank provides the custodial services for any of the eleven approved ETFs. This is risky.”
.@GaryGensler is violating the SEC’s statutory mission with SAB 121.
We must pass @USRepMikeFlood's resolution so Chair Gensler’s illegal rule ceases to be in effect.
See my remarks on the resolution below. pic.twitter.com/cn8HQV2cAb
— Tom Emmer (@GOPMajorityWhip) February 29, 2024
Ironic Move By Crypto-Friendly Politicians
On the flip side, Democrat Congressperson Maxine Waters, one of the legislators who voted against the resolution, stated that the move to rescind SAB 121 was an “ironic” move from the crypto-friendly politicians.
“We often hear Republicans and the crypto industry complain about a lack of clarity from the SEC, but ironically, the resolution before us effectively blocks the SEC staff from providing that clarity around crypto.”
SABs are not enforceable laws under the SEC’s jurisdiction. Instead, they are a series of non-binding regulations used by SEC staff to enable forms to clarify how crypto companies should account for customer crypto holdings.
SABs do not need public notice or comment periods like the other more formal rules.
Crypto Regulation In The US
Crypto’s volatile relationship with the US government might see considerable resolutions in 2024, from the arrival of several consequential regulations to decisions in key court cases that might define how regulators treat digital assets. However, the much-awaited rules of the space might remain largely unwritten.
Each year appears like the absolute tipping point in crypto’s relationship with its US government regulators, yet that moment always appears to remain out of reach. The sector remains desperate for the US to catch up with Europe and other jurisdictions (mainly in Southeast Asia) in putting formal crypto regulations on the books.