Regulation
Senate Votes to Overturn SEC Cryptocurrency Custody Rule – Ledger Insights
Today the United States Senate voted on a bipartisan resolution to overturn the Securities and Exchange Commission (SEC) SAT 121, the staff accounting bulletin that makes it prohibitive for banks to offer digital asset custody services. This follows a similar one Congressional vote last week. Today’s resolution was approved with 60 votes in favor and 38 against. That included Senate Democratic Majority Leader Chuck Schumer’s yes vote. His vote could prove important because the White House promised last week to veto the resolution if it were presented to the President.
The accounting rule requires listed companies, including banks, to include assets in custody as both assets and liabilities on their balance sheets. Usually these assets do not go on the balance sheet because they belong to the customer. Given that banks’ capital requirements are based on their balance sheets, this means that banks must set aside huge amounts of capital to provide custody of digital assets. It is the reason why no banks provide custody of Bitcoin ETFs.
The Government Accountability Office (GAO) determined that SAB 121 warranted congressional review. The SEC apparently did not consult with banking regulators before issuing the accounting bulletin.
Bipartisan opposition
Another Democrat unhappy with SAB 121 is Rep. Wiley Nickel. He co-authored the congressional resolution and wrote to SEC Chairman Gensler before today’s vote calling on him to withdraw SAB 121. He said he had received no response.
“The mission of the Securities and Exchange Commission (SEC) is to protect investors. However, SAB 121 does just the opposite, preventing highly regulated American banks from placing digital assets in their custody on a large scale,” she wrote.
Senator Lummis proposed the resolution to the Senate. Before the vote, he underlined how the registration of assets on the balance sheet disadvantages consumers in bankruptcy because it mixes the customer’s assets with those of the custodian. “Refusing to revisit this policy after bipartisan criticism is strange,” he said.
After today’s vote, he wrote on . It is also the first time Congress has passed standalone cryptocurrency legislation. We have just started”. Even Senator Lummis recently proposed a stablecoin bill.
The resolution prevents the SEC from issuing future rules on this topic, which is not ideal. However, given the GAO opinion last year, the SEC has had ample time to engage and update SAB 121.