The contentious Staff Accounting Bulletin No. 121 may be overturned thanks to a vote by the House Financial Services Committee to advance the resolution.
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In support of a resolution to reverse an SEC guideline that has barred banks from participating in cryptocurrency custody, the House Financial Services Committee (HSFC) cast a vote.
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Twenty HSFC members voted against the resolution, while 31 members from both political parties supported it during a markup hearing on February 29.
The House Financial Services Committee said in a statement that “by overturning SAB 121, the Resolution will ensure consumer protection by removing roadblocks that prevent highly regulated banks from acting as custodians of digital assets.”
Introduced in March 2022, the SEC’s Staff Accounting Bulletin No. 121 is a set of guidelines mandating that institutions holding cryptocurrency assets record those holdings as liabilities on their balance sheets.
The resolution’s Republican sponsor, Congressman Mike Flood, claimed that because custodial assets—which include securities and digital assets like Bitcoin—are “always considered off-balance sheet,” the SAB 121 is unjust to banks wishing to custody cryptocurrency.
“The ramifications of requiring banks to hold these assets on-balance sheet are pretty significant.”
“The on-balance sheet treatment would affect a bank’s other regulatory obligations like their capital and liquidity requirements if they were to custody digital assets in accordance with SAB 121’s guidelines,” Flood continued.
Flood and Democratic congressman Wiley Nickel introduced the resolution on February 1st, claiming that SAB 121 had “beyond the scope of an accounting bulletin” and had thus turned into a de facto law.
Notably, before SAB 121 is overturned, the resolution must still pass both the House and the Senate full floors.
Republican congressman Tom Emmer, who is friendly to cryptocurrency, claimed during the markup hearing that SAB 121 was an “illegal” illustration of SEC Chairman Char Gary Gensler’s “unrelenting prejudice towards the digital asset ecosystem.”
According to Emmer, SAB 121 added “unnecessary and avoidable” concentration risk to the cryptocurrency market.
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“One excellent example are the Bitcoin ETFs. Of the eleven approved ETFs, not a single bank offers custodial services. It’s risky, he continued.
However, one of the lawmakers who voted against the resolution, Democratic Congresswoman Maxine Waters, called the decision to revoke SAB 121 a “ironic” move from politicians who support cryptocurrencies.
“The resolution before us effectively prevents the SEC staff from providing that clarity around crypto,” the speaker said, “despite the fact that we often hear Republicans and the crypto industry complain about a lack of clarity from the SEC.”
SABs are not legally binding under SEC jurisdiction. Rather, they are a set of voluntary standards that SEC employees use to assist businesses in making sense of how cryptocurrency firms ought to record the assets of their clients.
Unlike other more formal rules, SABs do not require public notice or comment periods.
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