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Will Biden have the final say on a controversial crypto accounting rule?
A little-known rule proposed by the US Securities and Exchange Commission (SEC), unpopular with a large number of financial firms – particularly banks – and vehemently opposed by most of the cryptocurrency industry, is essentially being revived by Chairman Joseph Biden.
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The House on Wednesday overwhelmingly approved the decision to overturn the SEC’s Staff Accounting Bulletin (SAB) 121. In the normal course of events, the measure would then pass the Senate, but, in an unexpected twist, Biden has warned that he will veto the bill.
“This move makes so little sense that it is very likely that the White House does not even understand the issues at stake and is simply pandering to a certain limited and unreasonably biased but influential faction,” Noelle Acheson, author of “Crypto is “Macro Now” newsletter of market research, he said on X. “Who is the government serving here? Who is it protecting?”
Acheson’s incredulity is perhaps justifiable. Critics have called SAB 121 “obscure,” a “diktat,” and a “noxious weed.” Since 2022, when the bulletin was published, digital asset custodians have had to treat assets they hold on behalf of clients as a liability on their balance sheets and hold additional capital to offset those liabilities.
Cryptocurrency advocates believe the rule is burdensome and capital-intensive, and interestingly, the same is true for banks and other financial incumbents. In February, major banking and securities industry bodies, including the Bank Policy Institute (BPI), the American Bankers Association (ABA), the Financial Services Forum (FSF), and the Securities Industry and Financial Markets Association (SIFMA) written a document letter to the SEC requesting changes to the bulletin requirements.
“SAT 121 will have a chilling effect on the ability of banking organizations to develop responsible use cases for distributed ledger technology (DLT) more broadly,” the letter reads. Custody is already a pretty low-margin business, and asking institutions to retain a dollar for every asset in custody, as extra insurance on top of just the ability to keep the assets safe, is a bit much.
But it’s not just industry workers who are complaining. In 2022, the U.S. Government Accountability Office (GAO). investigated SAB 121 and found that the measure warranted congressional review because they skipped the necessary public review and comment periods. In other words, the SEC tried to pass off a rule as a mean reminder.
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This topic was then taken up by Sen. Cynthia Lummis (R-Wyo.) and Reps. Wiley Nickel (D-N.C.) and Mike Flood (R-Neb.), who released correspondence resolutions revoke the rule.
“The SEC issued SAB 121 without conferring with prudential regulators, despite the accounting standard’s effects on the treatment of custodial assets by financial institutions, and the SEC issued SAB 121 without going through the notification process and comment,” Rep. Flood said then. “When faced with excessive action by a regulator, it is Congress’ job to serve as a check.”
House Financial Services Committee Chairman Patrick McHenry (R-N.C.) also took up the baton to criticize an overzealous SEC, saying that “because they called it staff guidance, the SEC could avoid public comment and the rulemaking process governed by the Administrative Procedure Act, or APA.”
Biden has threatened to veto the Flood and Nickel bill, in what is seen as a pledge to support SEC Chairman Gary Gensler. “Limiting the SEC’s ability to maintain a comprehensive and effective financial regulatory framework for cryptocurrencies would introduce substantial financial instability and market uncertainty,” the Biden administration wrote in a Wednesday message. declaration.
See also: House votes to scrap SEC crypto policy as President Biden vows veto
SABs are not enforceable titles law, but rather a guide for both industry participants and the SEC itself when making legal interpretations, although these do not reflect consensus among the SEC’s five commissioners. They also generally do not go through a review process, which was the issue at hand.
Speaking to two days “The SEC Speaks” event last month, Commissioner Hester Peirce commented:
“No one can challenge the diktats because they are not a final agency action, but compliance is mandatory for anyone who is trying to avoid delays, denials and scrutiny by the SEC. So everyone silently obeys,” Peirce said.
“The bottom line is that such far-reaching rules should be set by the entire commission, not by staff reporting only to the president.”
In a better world, this might be true. But this time it looks like Biden may have the final say.