House Financial Services Committee Votes to Overturn SEC Guideline on Crypto Custody

The House Financial Services Committee (HFSC) has made a decisive move by voting in favor of a resolution to overturn a guideline established by the United States Securities and Exchange Commission (SEC) regarding crypto custody. The resolution aims to nullify Staff Accounting Bulletin No. 121 (SAB 121), introduced in March 2022, which mandates that institutions recording crypto holdings must classify them as liabilities on their balance sheets.

HFSC Markup Hearing: Bipartisan Support for Resolution to Rescind SAB 121, Advocating for Banks' Role in Crypto Custody

During a markup hearing on February 29, members of the HFSC, representing both political parties, voted on the resolution. Thirty-one members supported the measure, while 20 opposed it. The HFSC argued that by rescinding SAB 121, banks could serve as custodians of digital assets without facing regulatory hurdles, thus protecting consumer interests.

Republican congressman Mike Flood, the resolution's primary advocate, criticized SAB 121 as unfair to banks seeking custody of crypto assets. He highlighted the discrepancy in treating custodial assets as on-balance sheet liabilities, which could significantly impact banks’ regulatory obligations, including capital and liquidity requirements. Flood emphasized the potential ramifications of such requirements on the broader financial landscape.

Debate Over SAB 121 Repeal: Legal Boundaries and Regulatory Ambiguity in the Crypto Sphere

The resolution, introduced by Flood and Democrat representative Wiley Nickel on February 1, contends that SAB 121 exceeds the boundaries of an accounting bulletin, effectively assuming the status of a de facto law. However, its passage requires approval through a full floor vote in the House and the Senate before SAB 121 can be nullified.

While proponents of the resolution, such as crypto-friendly Republican Congressman Tom Emmer, labeled SAB 121 as illegal and detrimental to the crypto ecosystem, dissenting voices, including Democrat Congresswoman Maxine Waters, cautioned against rescinding the guideline. Waters criticized the move, characterizing it as ironic, given the complaints about regulatory ambiguity in the crypto space. She argued that the resolution obstructs the SEC’s efforts to clarify crypto regulations.

SAB 121 Repeal Vote Signals Pivotal Moment in US Crypto Regulation Debate

Staff Accounting Bulletins (SABs), like SAB 121, are non-binding guidelines used by SEC staff to clarify how companies should account for customer crypto holdings. Although not formal rules, SABs play a crucial role in shaping regulatory interpretations within the financial sector.

The HFSC’s affirmative vote on the resolution marks a significant development in the ongoing debate surrounding crypto regulation in the United States. While proponents argue that overturning SAB 121 would facilitate greater participation of banks in the crypto custody space, critics caution against the potential implications for regulatory clarity and financial stability. As the resolution progresses through the legislative process, its ultimate impact on the crypto industry and broader financial landscape remains uncertain.