In a recent development, the US House of Representatives engaged in an hour-long debate on House Joint Resolution 109. The decision seeks to revoke the Securities and Exchange Commission’s (SEC) Accounting Bulletin Statement (SAB) 121, a rule with significant implications for the banking and cryptocurrency industries.
SAB 121 requires banks to disclose all cryptocurrency holdings, maintain customers’ cryptocurrency assets on their balance sheets, and maintain a clearing obligation. In other words, for every dollar of cryptocurrency held in escrow, the bank must hold an equivalent amount.
Originally adopted as guidance, SAB 121 was later adopted as a rule by the Government Accountability Office (GAO). This decision has sparked controversy among banking regulators, including Federal Reserve Chairman Jay Powell, who has a different approach to cryptocurrency custody.
In response to the GAO decision, Senator Cynthia Lummis, Representative Mike Flood, and Representative Wiley Nickel introduced a joint resolution bill to repeal SAB 121.
Democrats, led by Maxine Waters, supported keeping the disclosure rules in SAB 121 but introducing a separate bill to change how cryptocurrency custody transactions work. They believe that repealing SAB 121 would weaken the SEC’s authority and ability to issue new guidance on cryptocurrencies in the future.
Maxine Waters announced that President Biden expressed his intent to veto the joint resolution if it reached his desk and emphasized the administration’s commitment to keeping SAB 121 in place.
Despite opposition from a majority of Democrats on the House Financial Services Committee, Republicans argued that without changing the rule, the United States risks smuggling cryptocurrencies abroad. They believe that decisions on such matters should not be left to the SEC, but to prudential banking regulators such as the Fed, the FDIC (Federal Deposit Insurance Corporation), and the OCC (Office of the Comptroller of the Currency).
Representatives Flood and Nickel expressed concern about the risk of centralization of Bitcoin, the asset that backs Bitcoin ETFs. They pointed out that large companies such as BlackRock, Fidelity and Bitwise cannot hold custody at banks, which leads to high centralization in Coinbase.
As discussions continue, all eyes are on the vote this weekend. While the resolution is likely to pass on a bipartisan basis in the House, it is expected to face challenges in the Senate. Additionally, the White House has signaled its intent to veto any effort to revoke SAB 121.
*This is not investment advice.
