In a crucial development, the Senate has voted to overturn SEC-issued crypto accounting guidelines that discourage financial institutions from being custodians of digital assets. Now the final decision lies with President Biden. He must decide whether to sign the appeal [and allow the overturn] or veto it and support it going forward. If signed by him, financial institutions will be allowed to custody crypto assets at scale. SAB 121 CRA—the first standalone crypto bill ever to pass both chambers of Congress—sailed through the Senate 60-38.
The SEC published the SAB 121 guidance, known as a bulletin, in March 2022, which advises any entity safeguarding crypto assets on behalf of others to put them on its balance sheet as if it owned them. According to those opposed to the rule, it would limit options for American crypto owners who prefer to keep those digital assets at traditional banks, which face additional regulatory pressures beyond SEC disclosures.
Additionally, crypto proponents argue that this could be an issue if the entity goes bankrupt, as they declare ownership of assets they are merely custodians of, which does not protect retail investors at all. On top of that, this does not apply to traditional assets like stocks. Critics emphasized that it was done to block regulated financial entities from providing custodial services.
SEC: GAO Says It’s Time for Congress to Step In
Additionally, a legal inquiry conducted by the Government Accountability Office [GAO] determined that the SEC’s guidance, referred to as Staff Accounting Bulletin 121, essentially functioned as an agency rule that should be subject to congressional scrutiny. The SEC’s enforcement strategy before formal regulations has faced significant backlash from cryptocurrency supporters, who have accused the regulator of exceeding its jurisdiction.
Citing the guidance, market observers are also skeptical about the adequacy of existing regulations to police crypto markets and the need for new custody rules. The discussion also delved into the SEC’s approach to enacting different crypto custody rules for digital assets while simultaneously giving the entire custody of Bitcoin ETFs to Coinbase.
“It’s just a really weird situation and a good example of how the SEC has tied itself in knots a bit with its full-court press against crypto,” Sean Tuffy, a banking regulation expert, stated.
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