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The US House of Representatives has taken a significant step toward reshaping the regulation of digital assets by passing Representative Mike Flood’s bipartisan resolution, H.J.Res. 109, on May 8. This resolution seeks to overturn the Securities and Exchange Commission’s (SEC) Staff Accounting Bulletin (SAB) 121, which has been a point of contention within the financial and crypto communities.
Advocates for the bill argue that the SEC’s rule burdens financial institutions. They say it makes serving as custodians of digital assets too expensive.
Legislative Support vs. Presidential Veto: The Battle Over SAB 121
Under SAB 121, issued in March 2022, financial institutions must include customers’ digital assets on their balance sheets. Critics argue this accounting requirement causes significant operational and financial challenges. These challenges affect firms that custody cryptocurrencies and other digital assets.
By overturning SAB 121, supporters of H.J.Res. 109 believe it will remove regulatory barriers. This, in turn, will facilitate safer and more efficient digital asset transactions through regulated banks and financial institutions. Congressman Patrick McHenry highlighted the practical implications of SAB 121.
“If you want American assets to be protected, they should be held in custody, not on the bank’s balance sheet. […] And finally, if you want to send a message that rogue regulators cannot circumvent Congress in our well-established rule-making process, vote yes,” Congressman McHenry said.
The resolution has garnered support from various sectors of the industry and legislators who believe that the SEC’s rule represents an overreach of regulatory powers. This sentiment is echoed by House Majority Whip Tom Emmer, who emphasized the nonpartisan nature of digital asset innovation.
“We must work that way in Congress to ensure the digital asset ecosystem can thrive here in the United States,” Emmer affirmed.
However, the opposition to this resolution comes from the highest levels of government, including the President Joe Biden administration. They argue that overturning SAB 121 would weaken the SEC’s ability to protect investors and the broader financial system from the risks associated with crypto assets.
“Limiting the SEC’s ability to maintain a comprehensive and effective financial regulatory framework for crypto-assets would introduce substantial financial instability and market uncertainty. If the President were presented with H.J. Res. 109, he would veto it,” The White House stated.
Lawmakers Critique SEC’s Crypto Crackdown
Criticism of the SEC’s recent actions extends to its handling of major crypto platforms. For instance, the SEC’s issuance of Wells Notices to platforms like Robinhood has been portrayed by some lawmakers as an overextension of its regulatory mandate. US Representative John Rose argued that such actions exceed the SEC’s role to maintain orderly markets and protect investors.
“The SEC exceeded its mandate to protect investors and maintain fair, orderly markets by issuing a Wells Notice to Robinhood, a precursor to enforcement action. I’m proud to help lead the effort to provide clarity by passing the FIT for the 21st Century Act so that rogue regulators like Gary Gensler can focus on their mandate to protect investors and not disrupt innovation,” Congressman Rose said.
SEC Chairman Gary Gensler defended his strict regulatory approach in a CNBC interview. He aims to bring the crypto sector under tighter control.
Gensler spoke about the SEC’s oversight of a $110 trillion capital market. He views cryptocurrencies as prone to scams and fraud.
However, Gensler was reluctant to question whether Ethereum (ETH) is a commodity or security. Instead, he focuses on the lack of necessary investor disclosures and criticizes intermediaries’ practices in the centralized crypto markets.
SEC Commissioner Mark Uyeda critiqued this stance. FOX journalist Eleanor Terrett reported that Uyeda emphasized the need for a regulatory framework that accommodates innovation.
“While the easiest regulatory response to crypto and digital asset innovation is to use bad actors as an excuse to ‘shut it all down’, regulators should be creating a pathway to compliance for legitimate efforts. The SEC has yet to develop that pathway,” Uyeda explained.
As H.J.Res. 109 moves to the Senate, the implications of its potential approval loom large over the regulatory environment of digital assets. This highlights the ongoing debate between regulation and innovation in the crypto sector.