Regulation
US Senate Rejects SEC Crypto Accounting Legislation, But Biden Can Veto Vote
The resolution received bipartisan support in both the Senate and House of Representatives.
The United States Senate has passed a resolution that seeks to overturn an accounting rule enacted by the Securities and Exchange Commission (SEC) that could have disastrous implications for financial institutions that provide cryptocurrency custody services.
May 16th in the Senate voted 60 to 38 in favor of repealing SEC Staff Accounting Bulletin (SAB) No. 121. The resolution, HJ Res. 109, harvest bipartisan support, with 11 Democrats joining all but two Republican senators who abstained in rejecting the rule despite Democratic Party leaders opposing the resolution.
“Limiting the SEC’s ability to maintain a comprehensive and effective financial regulatory framework for crypto-assets would introduce substantial financial instability and market uncertainty,” the White House said. She said in a statement published on May 8. “If the President were presented with HJ Res. 109, he would veto it.”
The move follows the U.S. House of Representatives’ similar vote to pass the resolution by a count of 228 to 182 on May 8, 2023, with 21 Democrats supporting the resolution. However, the vote failed to reach the two-thirds majority needed to override the presidential veto.
If the President were to veto it, the legislation would go back to Congress and would require a two-thirds majority vote to pass.
Stifle innovation or protect consumers?
On April 11, 2022 the SEC released SAT 121, mandating that companies offering cryptocurrency custody services must include such activities on their balance sheets. The bulletin was widely panned by industry advocates and Republican lawmakers, with the rule posing major capital and accounting complications for banks working with crypto clients.
Following the passage of the Res. HJ. 109, Republican Senator Cynthia Lummis criticized the SEC for trying to legislate “an industry it doesn’t regulate” through a SAB.
“This is a victory for financial innovation and a clear rebuke to the way the Biden administration and President Gary Gensler have treated crypto assets and marks the first time both houses of Congress have passed standalone cryptocurrency legislation ” Lummis said.
Republican Rep. Wiley Nickel took aim at the SEC’s attempt to circumvent him formal regulatory process in an effort to regulate the US cryptocurrency industry.
“Today’s Senate vote to repeal SAB 121 sends a clear bipartisan message: Congress will not stand by while Gary Gensler and the SEC deliberately circumvent the statutory rulemaking process and overstep their regulatory authority,” Nickel said.
Also Blockchain Association, a cryptocurrency advocacy organization solicited the White House to take note of the “overwhelming” bipartisan support for the resolution.
“The threat of a presidential veto negates the fact that there is a growing awareness… that cryptocurrencies are something our elected officials should be concerned about,” the Blockchain Association tweeted. “Consumers should not be punished simply for adopting new technologies.”
Across the room, Democratic Representative Stephen Lynch described the resolution allows financial institutions to hide “risky banking practices” from the public. “[H.J. Res. 109 would] make it more difficult for customers and investors to understand whether crypto companies and banks hold volatile assets, while limiting transparency and increasing the ability to commit fraud,” Lynch said.
During the debates leading up to the vote, Democratic Senator Elizabeth Warren said that SAB 121 provides needed protections for consumers.
“We have seen numerous hacks on crypto platforms,” Warren said. “Cryptocurrency-specific risks can create liabilities that seriously impact a company’s financial condition. SAB 121 simply clarifies how companies should account for such risks in their financial disclosures.”
The resolution now hangs in the balance as lawmakers and industry stakeholders await President Biden’s decision.