House Poised to Vote on Erasing SEC Crypto Policy While President Biden Vows Veto

As an experienced financial analyst, I believe that the ongoing debate surrounding the U.S. House resolution to reject the Securities and Exchange Commission’s (SEC) controversial accounting policy on crypto custody is a significant development with potential far-reaching implications for the digital assets industry.

As a crypto investor, I’ve been closely following the developments regarding the SEC’s cryptocurrency accounting guidance that has raised concerns within the industry. The U.S. House of Representatives is set to vote on a resolution rejecting this guidance on Wednesday. However, I’ve heard President Biden express his intention to veto this effort if it reaches his desk. This means that, regardless of the House’s decision, the current SEC guidelines are likely to remain in place for now.

Critics, including digital asset businesses and Republican lawmakers, have targeted the Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 121, or SAB 121, since its implementation. The bulletin aimed to establish accounting guidelines for crypto assets, requiring banks to record their customers’ digital tokens on their balance sheets, which could lead to significant capital expenditures. However, concerns have been raised over the mishandling of this policy in a government review. Despite these criticisms, the SEC and its Chair, Gary Gensler, have defended the bulletin.

In a recent interview with CoinDesk, Rep. Mike Flood (R-Neb.) criticized SEC Chairman Gary Gensler for employing seemingly routine accounting rules to bar major publicly traded banks from managing digital assets. According to Flood, who sponsored the effort, this move is problematic since the SEC allegedly neglected to collaborate with banking regulators on the matter. Flood further contended that Gensler lacks expertise in the banking sector.

According to a White House statement issued by President Biden, the administration is prepared to use a veto to protect the policy in question.

In a statement released on Wednesday, Biden expressed his opposition to interfering with the Securities and Exchange Commission (SEC) as they address risks, both technological, legal, and regulatory, that have resulted in significant consumer losses leading to the issuance of SAB 121.

Flood said he expected the House to vote late in the day to kill the SEC’s policy.

In his House floor speech on Wednesday, Rep. Patrick McHenry (R-N.C), the chairman of the Financial Services Committee, jested about the rulemaking process and disregarded other regulatory bodies in reference to SAB 121. This regulation represents a significant departure from the standard practice for how highly regulated banks manage assets on behalf of their clients.

But a key House Democrat thought the resolution goes too far.

“Rep. Maxine Waters (D-Calif), the top Democrat on McHenry’s committee, criticized the proposed bill, stating that it uses excessive force to address an issue which could potentially be resolved with more precision. She added that her colleagues from the opposing party are not only acting in favor of special interest groups but also intentionally targeting and weakening the Securities and Exchange Commission.”

The SAB 121 directive, initially intended for internal staff use, was later found by the Government Accountability Office (GAO) to require treatment as a rule instead. This means that it should have undergone the public comment process and been submitted to Congress for approval.

Rep. Flood presented a resolution in the House of Representatives to disapprove of the regulator’s guidance, joined by two Democratic colleagues. Meanwhile, Sen. Cynthia Lummis (R-Wyo.) is advocating for a similar resolution in the Senate. Once passed in both chambers, the resolutions would require Biden’s approval.

As a researcher, I’ve discovered that when an agency rule is reversed under the Congressional Review Act, it isn’t just erased but also prevents anything similar from being implemented in the future. Regarding SAB 121, Waters pointed out that aside from the contentious custody aspect, this rule offered essential guidance on cryptocurrency disclosures, which would be at risk if Congress overturned the policy. Similarly, President Biden shared concerns about policies that would no longer be allowed if SAB 121 was repealed.

Using the Congressional Review Act, Biden pointed out, could unnecessarily restrict the Securities and Exchange Commission (SEC) in establishing necessary regulations for crypto-assets, potentially leading to significant financial instability and market turbulence.

Flood expressed disappointment over the president’s decision to allow the misuse of a bulletin instead of issuing a proper federal rule. He vowed to explore every available opportunity before the end of the year to include this provision in legislation that would reach the president’s desk.