US Politicos Challenge SEC's Crypto Accounting Rules
- Proposed Congressional Action Against Controversial SEC Crypto Accounting Bulletin
- Understanding the SEC's Accounting Bulletin No. 121
- The Role of Regulatory Guidance and The Reaction of Congress
- Addressing SAB 121's Impact on Financial Institutions
- Crypto Lobbying Groups Applaud Congressional Efforts
Proposed Congressional Action Against Controversial SEC Crypto Accounting Bulletin
Members of Congress have initiated efforts aimed at repealing an U.S. Securities and Exchange Commission (SEC) accounting bulletin which imposes restrictions on firms desiring to hold customer's cryptocurrencies. Sen. Cynthia Lummis (R-Wyo.), and Reps. Wiley Nickel (D-N.C.) and Mike Flood (R-Neb.) have introduced resolutions to both the Senate and House of Representatives. These resolutions express formal disapproval of the accounting rule and declare it as lacking legal force.
Understanding the SEC's Accounting Bulletin No. 121
The SEC's 2022 staff accounting bulletin No.121, also known as SAB 121, mandates a company that holds a client's cryptocurrencies to reflect this on the firm's own balance sheet. This could necessitate banks willing to hold crypto to maintain what they perceive as a burdensome amount of capital to offset the risk. This move triggered backlash from the digital assets sector.
The Role of Regulatory Guidance and The Reaction of Congress
Staff guidance issued by a federal regulator is primarily intended to provide clarity on understanding and interpreting existing policy. However, when an agency leverages guidance to establish a new policy it often attracts the scrutiny of Congress. As per a report by the Government Accountability Office last year, the SEC should have presented this policy to lawmakers and adhered to the other required processes when issuing a new rule.
Addressing SAB 121's Impact on Financial Institutions
The resolution by lawmakers under the Congressional Review Act is an attempt to repeal the SEC's work. The SEC did not provide an immediate response to request for comment on this opposition. Rep. Flood stated that The SEC issued SAB 121 without engaging with prudential regulators despite the accounting standard's effects on financial institutions' handling of custodial assets, and the SEC issued SAB 121 without proceeding through the notice-and-comment process.
Crypto Lobbying Groups Applaud Congressional Efforts
Crypto lobbying entities such as the Chamber of Digital Commerce lauded the initiative. The Chamber's CEO, Perianne Boring, commented on the stringent requirement by SAB 121 for custodians to maintain an equal asset on the balance sheet as a liability. This parity requirement, where every $100 in bitcoin held demands $100 in a similar asset to also be held on the balance sheet, has proven to deter institutions from providing digital asset custody options.
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