US House Overturns SEC SAB 121 Crypto Rule on Custodian Liabilities

In a significant bipartisan move, the U.S. House of Representatives has approved a resolution challenging a controversial Securities and Exchange Commission (SEC) rule. This rule, which requires cryptocurrency custodians to list customer holdings as liabilities, has stirred intense debate within financial circles and the digital asset community.

Here’s what unfolded.

Bipartisan Backlash Against SEC Rule

The passage of this resolution highlights the widening gap between regulatory policies and the dynamic nature of digital assets. Both Republicans and a significant group of Democrats have joined forces to challenge the SEC’s Staff Accounting Bulletin No. 121 (SAB 121), issued in 2022.

SAB 121 mandates financial institutions holding cryptocurrencies for clients to classify these holdings as liabilities, a move criticized as overly burdensome by many in the crypto industry.

The bipartisan consensus against this regulation led to a decisive vote of 228-182 in favor of the resolution in the House.

Political Showdown

Republican Chairman of the House Financial Services Committee, Patrick McHenry, criticized the SEC’s approach. He labeled SAB 121 as a prime example of regulatory overreach under Gary Gensler’s leadership, arguing that it infringes on firms’ autonomy in safeguarding digital assets.

“Staff Accounting Bulletin, or SAB, 121 is one of the most glaring examples of the regulatory overreach that has defined Gary Gensler’s tenure at the SEC. Through SAB 121, the Commission is trying to dictate how financial institutions and firms safeguard Americans’ digital assets under the guise of so-called staff guidance,”

On the opposing side, Democrat Representative Maxine Waters defended the SEC’s stance, emphasizing the importance of transparency and consumer protection in the crypto sphere. Waters cited instances of crypto firm collapses as evidence of the necessity of regulatory oversight.

Uncertain Future in Senate

With a rare bipartisan agreement, the resolution has advanced to the Senate. However, the future of the resolution remains undetermined. 

The White House has already signaled its opposition, with President Biden poised to use his veto power if the resolution passes. Concerns loom over the potential repercussions of revoking SAB 121, with fears of heightened market volatility and financial instability.

There Is Still Hope…

Amidst the political drama, Senator Cynthia Lummis has emerged as a beacon of hope for the digital asset community. Lummis introduced a companion measure in the Senate, signaling ongoing efforts to reshape crypto regulation in a more favorable light.

Cody Carbone, Vice President of Policy at the Chamber of Digital Commerce, praised the House’s decision as a positive step forward. However, he expressed disappointment at the prospect of a presidential veto, highlighting the industry’s concerns over the stifling effect of regulatory constraints.

“Disappointed that President Biden issued a Statement of Administration Policy saying he would veto H.J. Res 109, the Joint Resolution to nullify the SEC’s Staff Accounting Bulletin (SAB) 121.” 

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