Senate joins House in overturning SEC crypto rule, Biden threatens veto

(Kitco News) – Regulating the cryptocurrency industry continues to be a contentious issue in the U.S. as a majority of lawmakers in the Senate passed a joint resolution on Thursday calling for the Securities and Exchange Commission (SEC) to strike down a rule affecting financial institutions doing business with crypto firms.

60 Senators voted ‘aye’ to H.J.Res. 109, a resolution that nullifies the SEC’s Staff Accounting Bulletin No. 121 (SAB 121), while 38 voted against the measure. 

SAB 121 was designed to help clarify accounting treatment for crypto assets, directing banks holding a customer’s digital tokens to do so on its own balance sheet, potentially incurring massive capital expenses. The measure has been widely criticized by both lawmakers and crypto industry leaders, who warned the bill would stifle innovation and further push the crypto industry to more welcoming jurisdictions.

President Biden promised that he would veto H.J.Res. 109 if passed, setting the stage for a showdown between Congress and the White House. 

“SAB 121 was issued in response to demonstrated technological, legal, and regulatory risks that have caused substantial losses to consumers,” Biden said in a statement, adding he “strongly opposes” disrupting the SEC’s work on this.

“By virtue of invoking the Congressional Review Act, it could also inappropriately constrain the SEC’s ability to ensure appropriate guardrails and address future issues related to crypto-assets including financial stability,” the statement said. “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. If the President were presented with H.J. Res. 109, he would veto it.”

Since Congress opted to use the Congressional Review Act to attack the policy, the SEC will legally be unable to pursue similar policies in the future if the reversal is ultimately successful. 

Despite the statement from Biden, the House voted strongly in favor of the resolution on May 8, with 21 Democrats joining Republicans in passing the measure. With the Senate also approving it, all eyes are now on President Biden to see if he will follow through with his veto threat.  

“The tally, a stunning 60 ‘Yeas’ in the Senate vote, sends a strong signal that both houses of Congress, across the political divide, clearly disapprove of this rule,” said the crypto advocacy group Blockchain Association in an X post on Thursday. “With the American public having weighed in via the legislative process, the SAB 121 CRA now goes to President Biden’s desk.”

“The threat of a presidential veto denies the fact that there is a growing awareness among the voting public, particularly young people, that crypto is something our elected officials should care about,” they added. “A recent poll from @DCGco found that 48% of swing state voters do not trust political candidates who interfere with crypto.”

“Consumers shouldn’t be punished simply for embracing new technologies. And keeping our highly-regulated banking sector, and their customers, out of digital assets by default, makes no sense,” they concluded. “This group of voters is a growing force in U.S. politics and Congress is on their side. We hope the administration will align with healthy majorities in both chambers and sign the repeal of SAB 121.”

Notably, this was the first time during this session of Congress that both houses passed standalone crypto legislation, according to Senator Cynthia Lummis. 

“The Senate passing a CRA overturning SAB 121 is a win for financial innovation and a clear rebuke of the way the Biden admin and Gary Gensler have persecuted crypto,” she tweeted. “It also marks the 1st time Congress has passed standalone crypto legislation. We are just getting started. @POTUS, do the right thing, and sign this bipartisan resolution into law.”

Representative Mike Flood (R-NE), who sponsored the resolution, called the vote a “landmark result” due to the bipartisan support.

“It is clear there is overwhelming opposition to SAB 121, and I urge President Joe Biden to reconsider his previous statement of intent to veto the resolution,” he added. “The President should sign my resolution to ensure the SEC reverses course and sets America on a path to growing our digital financial future.” 

“Today’s Senate vote to repeal SAB 121 sends a clear bipartisan message: Congress will not stand idly by as Gary Gensler and the SEC deliberately sidestep the statutory rulemaking process and overstep their regulatory authority,” said Rep. Wiley Nickel (D-NC), a co-sponsor of the House resolution.

If President Biden follows through on his veto threat, the resolution will return to Congress, which will then have the option to override the veto with a two-thirds majority vote in both the House and the Senate. If they achieve the required majority, the bill will become law despite the President’s veto.