The U.S. Senate joined the House of Representatives on Thursday in seeking to repeal an accounting standard issued by the Securities and Exchange Commission (SEC) known as Staff Accounting Bulletin No. 121 (SAB 121), despite President Joe Biden’s vow to veto the resolution.
Biden’s Potential Veto
In the Senate, lawmakers voted 60-38 to pass the resolution to repeal this policy. However, while this move could ease restrictions on banking operations, the cryptocurrency industry might not be able to breathe easy just yet. Biden has stated that repealing the regulation in this manner would disrupt efforts to “protect investors in the crypto asset markets and safeguard the broader financial system.”
Over a dozen Democratic senators joined the majority of Republican senators to pass the resolution. However, the resolution did not secure enough votes to reach a veto-proof majority. If Biden decides to veto the measure, it will be sent back to Congress, where lawmakers can attempt to override the veto with a two-thirds majority vote.
Senate Majority Leader Chuck Schumer, along with other Democratic leaders, has opposed the SEC’s cryptocurrency accounting standard.
Reasons Behind the Resolution
Republican Senator Cynthia Lummis, who spearheaded the resolution, called the bulletin a disaster that fails to protect consumers. She said, “The latest vote is a significant victory for financial innovation, a clear rebuke of the Biden administration and SEC Chair Gary Gensler’s handling of crypto assets, and both chambers have passed independent crypto bills.”
Criticism of SAB 121
Issued by the SEC in 2022, SAB 121 requires companies that custody crypto assets for clients to record these assets on their balance sheets. This could have significant capital implications for banks working with cryptocurrency clients. Republican lawmakers criticized the SEC for implementing the policy without the necessary rule-making process. The Government Accountability Office (GAO) agreed, stating that the SEC’s approach was flawed and that the standard should have been established as a rule rather than staff guidance.
An SEC spokesperson commented after the Senate vote, saying, “SAB 121 is non-binding staff guidance. If followed, it will enhance critical disclosures for corporate investors.” He referred to companies that custody crypto assets for clients. “We have repeatedly seen crypto firms collapse, leaving their clients in bankruptcy courts, hoping to reclaim what they believe is rightfully theirs.”
In simple terms, the concern is that the volatility of cryptocurrencies affects the financial statements of reporting institutions, increasing the capital burden on companies, particularly those that custody crypto assets for clients and banks.
Lawmakers Question SEC’s Use of “Guidance” to Expand Jurisdiction
In recent years, Republican lawmakers have opposed federal financial regulators’ use of “guidance documents” to expand their regulatory roles, arguing that regulatory agencies have overreached their jurisdiction, and the regulated industries feel compelled to comply with these “guidelines” even if they are not legally binding.
One of the proponents of this resolution, Republican Representative Mike Flood, described the vote as “symbolic” and noted it had bipartisan support. He stated that President Biden should sign the congressional resolution to ensure the SEC retracts its previous approach and sets a clear path for the future of digital finance in America.