US House to Reconsider Bill Overturning SEC Crypto Custody Guidance

US House to Reconsider Bill Overturning SEC Crypto Custody Guidance

The U.S. House of Representatives is preparing to revisit a bill aimed at overturning a controversial Securities and Exchange Commission (SEC) directive regarding cryptocurrency custody. House Majority Leader Steve Scalise has scheduled the reconsideration of the bill, which was previously vetoed by President Joe Biden in May, for July 9 or later.

At the center of the debate is Staff Accounting Bulletin No. 121 (SAB 121), issued by the SEC in March 2022. This guidance advises financial institutions holding crypto assets on behalf of customers to include these assets on their balance sheets as if they owned them. Critics argue that this directive discourages investment banks and traditional financial entities from providing large-scale crypto custody services.

The bill to repeal SAB 121 had initially passed both the House and Senate with bipartisan support. However, achieving the two-thirds majority required to override President Biden's veto may prove challenging. The initial passage of the bill saw an unusual alliance between lawmakers, investment banks, crypto investors, and even some crypto skeptics, all united in their desire to see SAB 121 repealed.

Critics of SAB 121, including House majority whip Tom Emmer, have labeled the guidance as "illegal" and a "violation" of the SEC's statutory mission. They argue that the directive forces banks to treat crypto assets differently from other types of assets, creating unnecessary complexity and uncertainty. While SAB 121 is not a formal rule, the lack of clarity on its enforcement has deterred several large firms from entering the crypto custody business.

In his veto letter, President Biden emphasized his administration's commitment to protecting consumer and investor well-being. He stated that SAB 121 reflected considered technical views on the accounting obligations of firms safeguarding crypto assets. Biden also expressed concern that overturning the guidance would improperly limit the SEC's ability to establish appropriate regulatory frameworks and address future issues.

The President further asserted the necessity of appropriate guardrails to protect consumers and investors, which he deemed essential for harnessing the potential benefits of crypto innovation. Biden also expressed his administration's willingness to collaborate with Congress to develop a comprehensive and balanced regulatory framework for digital assets.

As the House prepares to reconsider the bill, the crypto industry and its supporters are closely monitoring the situation. The outcome of this legislative effort could significantly impact how banks handle crypto assets and shape the future of crypto custody services in the United States. Whether the measure can gather enough support to override the presidential veto and repeal SAB 121 remains to be seen.

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