The U.S. House of Representatives recently voted to annul the contentious Securities and Exchange Commission (SEC) guidance that restrictions banks from having custody of crypto assets. The legislation aimed to refute the SEC’s Special Accounting Bulletin 121 (SAB 121), which mandates banks to record their clients’ crypto assets on their balance sheets, contrasting to the treatment of traditional securities.
The bill, namely H.J. Res 109, was introduced by Republican Representative Mike Flood and saw support from numerous Democrat members. With 21 Democratic votes alongside 207 Republican votes, the bill managed to cross the threshold with 228 votes in favor as opposed to 182 against.
Flood criticized the SEC’s SAB 121 stating that it was unfair to banks wishing to hold crypto assets, indicating that custody assets are customarily regarded as off-balance sheet. However, President Joe Biden made it known that he would reject this legislation if it landed on his table.
Through a recent statement, the White House expressed strong disapproval of the intentions to negate SAB 121, emphasizing that it would hinder the SEC’s attempt to safeguard investors in the crypto markets and protect the wider financial system.
It added that curbing SEC’s power to maintain a thorough and substantial financial regulatory framework for crypto-assets would incite financial instability and create market uncertainty.
The SEC rolled out SAB 121 in March 2022, detailing the regulator’s accounting directives for institutions that wish to manage crypto assets while primarily obstructing banks from holding crypto assets for their clients. Critics, including U.S. legislators and SEC Commissioner Hester Peirce, believe that SAB 121 compromises the readiness of regulated banks to act as crypto custodians and discriminates crypto assets from other holdings.
The House Financial Services Committee released a statement supporting the dismissal of SAB 121, arguing that the mandate hinders reputable financial institutions from acting as custodians of digital assets, compromising consumer protection. Committee Chairman Representative Patrick McHenry criticized the SEC’s policy, describing it as a glaring instance of regulatory overextension that has characterized Gary Gensler’s tenure at the SEC.