Legislators, prominent figures in the cryptocurrency industry, and banking leaders are contending that a SEC directive concerning the custody and accounting of crypto assets is detrimental to U.S. investors and innovation, however, Joe Biden is in opposition.
Update (June 1): Joe Biden has vetoed a SAB 121 bill. Washington is preparing for a heated debate regarding a contentious SEC ruling. A significant breakthrough occurred last week when the House of Representatives voted to revoke Staff Accounting Bulletin (SAB) 121.
Table of Contents
What is SAB 121?
SEC faces resistance
‘Madness’ — Founder of Consulting Firm Blames SAB 121 for FTX Fiasco
What is SAB 121?
SAB 121 mandates that publicly traded companies account for and disclose the responsibilities and risks associated with safeguarding customers’ crypto assets. The policy has sparked controversy due to its potential to complicate financial reporting and increase operational challenges.
These regulations were introduced in 2022 and have faced strong criticism from the crypto industry and banks, who argue that the measures have hindered them from offering digital asset services effectively.
On May 16, the U.S. Senate voted to overturn the SEC guidelines, but opponents of SAB 121 are not yet in the clear. The Senate’s decision still requires approval from the president. Nevertheless, President Joe Biden has indicated his readiness to veto the resolution to completely eliminate SAB 121. A statement from the White House affirmed the administration’s support for SAB 121, stating:
SEC faces resistance
Several Democratic lawmakers have been pressuring SEC chair Gary Gensler to retract SAB 121 voluntarily, rather than waiting for Congress to take action. One of them is Congressman Wiley Nickel, representing North Carolina’s 13th District, who is confident that Joint Resolution 109 will pass the Senate.
Nickel argues that repealing SAB 121 would enhance investor protection and ensure U.S. competitiveness on a global scale. Banks with a strong history of offering fiat custody services could expand their services to include crypto. Given that crypto projects like Voyager and Celsius failed to secure customer assets even after SAB 121 was implemented, some argue that the regulation was ineffective from the start.
In a letter to Gensler, Congressman Nickel expressed:
Nickel cautioned Gensler that SAB 121 imposes a “prohibitively expensive regulatory burden,” leaving U.S. consumers with limited options but to rely on “riskier offshore custody solutions.” He also criticized the SEC’s handling of digital assets as “misguided” and raised concerns about how SAB 121 was enforced. While staff accounting bulletins are typically intended to offer best practice guidelines, he accused the commission of a “violation of the rulemaking process” in implementing new policies.
‘Madness’ — Founder of Consulting Firm Blames SAB 121 for FTX Fiasco
Austin Campbell, the founder of Zero Knowledge Consulting, has labeled SAB 121 as “madness,” particularly because it was “unilaterally adopted without consultation” and “impairs the rights of crypto holders in a bankruptcy.” Campbell took to social media, stating:
He further cautioned that major financial institutions are strongly opposed to SAB 121 as they are being excluded from the growing demand for exchange-traded funds based on Bitcoin’s spot price.
Cardano founder Charles Hoskinson has also strongly criticized Biden’s stance on digital assets, alleging that his administration is seeking to dismantle the U.S. crypto sector. He argued that it is inappropriate for the SEC to utilize 90-year-old legislation to regulate crypto, and the stringent regulatory approach has already led several legitimate exchanges and trading platforms to relocate, benefiting competing economies through job creation and tax revenues.
With a potential veto on the horizon, this saga is far from over. It will be intriguing to observe how lawmakers on Capitol Hill, as well as industry leaders in traditional finance and the crypto sector, respond.
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