A bill aimed at overturning the Securities and Exchange Commission’s bulletin on cryptocurrency custodian accounting has garnered support from twenty-one Democrats and Republicans. The SEC’s bulletin, which required firms to list digital assets held by customers as liabilities, has faced criticism from financial institutions and key opinion leaders who support widespread adoption of cryptocurrencies. As a result, the House of Representatives introduced a bill to challenge the regulations.
The rule, issued in 2022, mandated financial institutions to classify customer cryptocurrency holdings as liabilities. The House showed division on the matter, with the Chair of the House Financial Services Committee, Patrick Henry, among the majority criticizing the SEC’s control over the cryptocurrency industry. On the other hand, some representatives called for stricter regulations to enhance transparency in the industry as a whole.
The SEC’s Staff Accounting Bulletin 121, released in 2022, has received negative feedback from crypto shops, financial institutions, and even the US President, who discouraged Democrats from passing the bill and stated his intention to veto it if it reaches his desk. This bulletin requires custodians of cryptocurrencies and digital assets to record them as liabilities in their accounting books. However, this practice has faced significant criticism, with many arguing that it would hinder financial institutions from supporting cryptocurrency businesses due to excessively high capital requirements.
Banks and other financial institutions feel constrained by the SEC’s persistent advancement of the custody rule. Several banks have directly expressed their concerns to SEC Chair Gary Gensler, pointing out the inability of banks to serve as custodians for ETPs that have already seen significant inflows since their approvals.
Some have even questioned the legality of Staff Accounting Bulletin 121, arguing that the SEC lacks the authority to enforce it without following the proper procedures. The bill to repeal the bulletin has already passed the House of Representatives and now awaits approval from the Senate before it reaches the President. The President has made it clear that he intends to veto the bill if it reaches his desk.
