Regulation
Senate joins House to overturn SEC cryptocurrency custody rule
Senate Majority Leader Chuck Schumer, D-N.Y., joined many of his Democratic colleagues in voting to pass a Congressional Review Act resolution to rescind cryptocurrency custody guidance from the Securities and Exchange Commission. President Biden has promised to veto the resolution.
Bloomberg News
WASHINGTON – The United States Senate past a measure to overturn Securities and Exchange Commission guidelines that create accounting standards for financial firms that hold cryptocurrencies in custody.
The measure will now be sent to President Joe Biden’s desk, although the president is he planned to veto.
Taking effect in 2022, the SEC’s SAB 121 directs most SEC-registered firms that hold crypto assets on behalf of clients to record such risk on the custodian’s balance sheet as a liability.
The resolution to overturn SAB 121 – introduced in the House by Republican Mike Flood of Nebraska – uses a law known as the Congressional Review Act to attempt to overturn the SEC’s guidance. The Congressional Review Act allows Congress to overturn actions of federal agencies that meet the CRA’s definition of “rule” with simple majorities in Congress and the signature of the President. The president’s veto can be overridden by a two-thirds majority in both houses.
The House voted in favor of the resolution by a vote of 228-182, with 21 Democrats voting in favor. Despite receiving bipartisan support in both chambers, the measure passed the Senate by a vote of 60-38, well short of the 67 votes needed to override a veto.
Lawmakers from both parties – and even prominent Democrats – have expressed disapproval of the SEC’s guidelines. Senate Majority Leader Chuck Schumer, D-N.Y., joined other Democrats in supporting the measure Thursday. House Financial Services Committee Chairman Patrick McHenry, R-N.C. He also criticized SAB 121, saying it effectively makes it prohibitive for financial companies to store customers’ cryptocurrencies.
Financial industry trade groups such as the American Bankers Association echoed the Republican leader’s sentiment, saying it would place an undue burden on banks.
“SAB 121 represents a significant departure from the long-standing accounting treatment for custodial assets and threatens the industry’s ability to provide its customers with safe and sound custody of digital assets,” the ABA and three other banking associations She said. “Other non-bank digital asset platforms subject to SAB 121 are not required to meet the same capital, liquidity or other prudential standards as banks and therefore do not face the economically prohibitive implications of SAB 121.”
Progressive Democrats like Rep. Maxine Waters, D-California, — a ranking member of the House Financial Services Committee — have staunchly opposed the resolution. Waters did it supported SAB 121 is critical to ensuring transparency and proper accounting for companies providing custodial services, it could prevent fraud and protect investors by requiring companies to accurately disclose and report the value of cryptocurrencies they hold.
President Biden has said this before would veto the measure. The White House has warned that limiting the SEC’s regulatory capabilities could present risks to the financial system.