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The U.S. House of Representatives is gearing up for a significant vote on Wednesday concerning the Securities and Exchange Commission's (SEC) guidance on cryptocurrency accounting. This guidance, known as Staff Accounting Bulletin No. 121 or SAB 121, has drawn sharp criticism from the cryptocurrency industry and Republican lawmakers, who argue that it has discouraged banks from engaging with cryptocurrency customers. Despite this, President Joe Biden has signaled his intention to veto any resolution aimed at rejecting this guidance.
SAB 121 was introduced to clarify how crypto assets should be accounted for, particularly directing banks holding customers' digital tokens to include them on their balance sheets, potentially leading to substantial capital expenses. However, it has faced scrutiny for its handling and implications. Critics, including Representative Mike Flood, the sponsor of the resolution, have accused SEC Chair Gary Gensler of using the guidance to limit large banks from entering the digital asset custody space. Flood also highlighted the lack of consultation with banking regulators during the formulation of SAB 121, asserting that Gensler's focus on digital assets is unwarranted in the banking sector.
The White House has expressed support for the SEC's guidance, with President Biden emphasizing the need to address technological, legal, and regulatory risks that have harmed consumers. Consequently, the administration views any attempt to disrupt the SEC's efforts on this front as undesirable. Despite this stance, Flood anticipates the House will move to reject the SEC's policy.
Republican lawmakers, such as Representative Patrick McHenry, have criticized SAB 121 for deviating from traditional regulatory practices governing banks' treatment of customer assets. McHenry characterized the guidance as a significant departure from established norms and criticized its impact on highly regulated banks.
However, not all members of the House share this viewpoint. Representative Maxine Waters, a key Democrat, criticized the resolution, arguing that it is an overreach and an attempt to undermine the SEC. She cautioned against using broad strokes to address what might be more nuanced issues and accused Republican colleagues of serving special interests rather than the public good.
The origins of SAB 121 have also come under scrutiny, with a Government Accountability Office (GAO) review suggesting that it should have been treated as a formal rule rather than mere guidance. To address this, Flood introduced the resolution to disapprove of the SEC's handling of the guidance. Senator Cynthia Lummis has pursued a similar resolution in the Senate, which would need to align with the House's decision before reaching the president's desk.
Should the resolution succeed, it would not only nullify SAB 121 but also prevent similar regulations from being implemented in the future under the Congressional Review Act. This prospect has raised concerns among supporters of the guidance, who argue that it provides essential disclosure guidelines for cryptocurrencies. President Biden echoed these concerns, warning of potential financial instability and market uncertainty if the SEC's ability to regulate crypto-assets is constrained.
In response to Biden's stance, Flood expressed disappointment and pledged to continue advocating against what he sees as the improper use of guidance in lieu of formal rulemaking. He vowed to explore every legislative avenue to ensure that the president's desk receives language addressing this issue before the year's end.