In a move potentially shaking up the regulatory landscape for cryptocurrencies, a bipartisan group of U.S. lawmakers is aiming to overturn a key policy implemented by the Securities and Exchange Commission (SEC) last year. The policy, outlined in Staff Accounting Bulletin (SAB) 121, requires companies holding their clients’ crypto assets to record them on their own balance sheets, a move perceived by many in the industry as hindering innovation and growth.
Leading the charge are Senator Cynthia Lummis (R-WY) and Representatives Wiley Nickel (D-NC) and Mike Flood (R-NE), who introduced matching resolutions in both the Senate and the House. These resolutions, filed under the Congressional Review Act, seek to formally disapprove of SAB 121 and declare it null and void.
The primary objection to SAB 121 lies in its potential to discourage traditional financial institutions from entering the crypto space. By requiring them to hold client crypto on their balance sheets, it exposes them to significant capital requirements and potential risks associated with the volatile nature of cryptocurrency markets. This, according to the lawmakers and many industry proponents, could stifle institutional adoption and limit its growth potential.
“This accounting rule throws unnecessary sand in the gears of American innovation,” Senator Lummis stated in a press release. “It discourages banks and other financial institutions from offering safe and responsible cryptocurrency custody services, ultimately harming American consumers and businesses.”
Supporters of the resolution also argue that SAB 121 lacks proper legal grounding. The Government Accountability Office (GAO) ruled in December 2023 that the SEC did not follow the required procedures for issuing such a rule, potentially jeopardizing its validity.
However, not everyone is on board with overturning the policy. The SEC maintains that SAB 121 is necessary to protect investors and promote transparency in the crypto market. They argue that recording crypto assets on balance sheets provides a clearer picture of a company’s financial exposure and potential risks involved. Additionally, some experts warn that repealing the rule could leave investors vulnerable to potential manipulations and scams.
“While fostering innovation is important, so is safeguarding investor protection,” said Lisa Bragança, a securities law professor at Georgetown University. “Removing this accounting rule might create regulatory gaps that could be exploited by bad actors.”
The resolution now faces an uphill battle. It needs to pass both chambers of Congress with a two-thirds majority, a tall order considering the current political climate. Even if successful, it could still be vetoed by President Biden, who has yet to take a public stance on this specific issue.
Regardless of the outcome, the effort to overturn SAB 121 highlights the ongoing debate around cryptocurrency regulation in the U.S. As the sector continues to evolve, policymakers grapple with finding the right balance between fostering innovation and ensuring investor protection, a delicate dance that will likely continue for the foreseeable future.
