In a decisive move, the House Financial Services Committee (HFSC) has voted in favor of a resolution to overturn a guideline set forth by the United States Securities and Exchange Commission (SEC) regarding crypto custody. The resolution seeks to nullify Staff Accounting Bulletin No. 121 (SAB 121), introduced in March 2022, which mandates that institutions recording crypto holdings must list them as liabilities on their balance sheets.
HFSC support for resolution
During a markup hearing on February 29, members of the HFSC, spanning both political divides, cast their votes on the resolution. Thirty-one members supported the measure, while 20 opposed it. The HFSC asserted that by rescinding SAB 121, banks could act as custodians of digital assets without facing regulatory impediments, thereby safeguarding consumer interests.
Republican congressman Mike Flood, who spearheaded the resolution, criticized SAB 121 as unjust to banks seeking custody of crypto assets. He highlighted the discrepancy in treating custodial assets as on-balance sheet liabilities, which could significantly impact banks’ regulatory obligations, including capital and liquidity requirements. Flood emphasized the potential ramifications of such requirements on the broader financial landscape.
Resolution’s legal and political implications
The resolution, introduced by Flood and Democrat representative Wiley Nickel on February 1, contends that SAB 121 exceeds the boundaries of an accounting bulletin, effectively assuming the status of a de facto law. However, its passage necessitates approval through a full floor vote in the House and the Senate before SAB 121 can be nullified.
While proponents of the resolution, such as crypto-friendly Republican Congressman Tom Emmer, labeled SAB 121 as illegal and detrimental to the crypto ecosystem, dissenting voices, including Democrat Congresswoman Maxine Waters, cautioned against rescinding the guideline. Waters criticized the move, characterizing it as ironic, given the oft-cited complaints about regulatory ambiguity in the crypto space. She argued that the resolution obstructs the SEC’s efforts to clarify crypto regulations.
SEC guidelines and their impact
It is essential to note that SABs, like SAB 121, are non-binding guidelines used by SEC staff to clarify how companies should account for customer crypto holdings. Unlike formal rules, SABs do not necessitate public notice or comment periods. However, they play a crucial role in shaping regulatory interpretations within the financial sector.
The HFSC’s affirmative vote on the resolution signals a significant development in the ongoing debate surrounding crypto regulation in the United States. While proponents argue that overturning SAB 121 would facilitate greater participation of banks in the crypto custody space, critics caution against the potential implications for regulatory clarity and financial stability. As the resolution progresses through the legislative process, its ultimate impact on the crypto industry and broader financial landscape remains to be seen.
