House Committee in the US Moves to Reverse SEC Regulation Restricting Bank Crypto Custody
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The House Financial Services Committee (HSFC) recently took action on a resolution targeted at overturning a guideline from the United States Securities and Exchange Commission (SEC) that has hindered banks’ ability to offer cryptocurrency custody services.
During a markup hearing held on Feb. 29, the resolution garnered support from both sides of the political spectrum, with 31 members voting in favor and 20 against.
The resolution focuses on the SEC’s Staff Accounting Bulletin No. 121 (SAB 121), which was introduced in March 2022. This guideline requires institutions holding cryptocurrency assets to classify these holdings as liabilities on their balance sheets.
According to the HSFC, rescinding SAB 121 would remove barriers hindering regulated banks from acting as custodians for digital assets, thereby bolstering consumer protection.
Republican Congressman Mike Flood, along with Democrat Representative Wiley Nickel, introduced the resolution on Feb. 1, criticizing SAB 121 for unfairly treating banks interested in crypto custody. Flood highlighted the significant impact of mandating banks to include these assets on their balance sheets, affecting their regulatory obligations regarding capital and liquidity requirements.
The resolution argues that SAB 121 goes beyond the typical scope of an accounting bulletin and effectively functions as a law. It must now pass a full floor vote in both the House and the Senate before SAB 121 can be overturned.
Crypto-friendly Republican Congressman Tom Emmer described SAB 121 as an unlawful demonstration of SEC Chair Gary Gensler’s bias against the digital asset ecosystem. Emmer pointed out the risks posed by the absence of banks offering custodial services for approved Bitcoin ETFs, which he deemed risky.
On the other hand, Democrat Congresswoman Maxine Waters, a critic of the resolution, deemed the effort to repeal SAB 121 as ironic, considering the frequent calls from Republicans and the crypto industry for clearer guidelines from the SEC. Waters emphasized that the resolution would paradoxically hinder the SEC staff from providing necessary clarity on cryptocurrency regulations.
Staff Accounting Bulletins, like SAB 121, do not carry the weight of enforceable laws but act as non-binding guidelines to assist companies in accounting for customer crypto holdings. These guidelines do not go through public notice or comment periods as is typical for more formal rules.
In related news, SEC Commissioner Hester Pierce, also known as ‘Crypto Mom,’ advocated for increased decentralization in the U.S. financial system and a more lenient approach towards crypto regulation and enforcement.
Speaking at the ETHDenver conference on Feb. 29, Pierce argued that decentralization could strengthen the resilience of the financial system by reducing concentration risks.
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