The U.S. House of Representatives has made a significant move by passing a bill aimed at reversing the Securities and Exchange Commission's (SEC) contentious guidance that restricted banks from holding cryptocurrencies. Despite this legislative victory, President Joe Biden issued a preemptive warning, stating his intention to veto the bill if it were to reach his desk.
The bipartisan bill, known as H.J. Res 109, was approved by the House on May 8, effectively nullifying the SEC's Special Accounting Bulletin 121 (SAB 121). This bulletin mandated banks to include customers' crypto assets on their balance sheets, a requirement that differed from the treatment of traditional assets like securities.
Republican Representative Mike Flood, the bill's sponsor, argued that SAB 121 placed an undue burden on banks interested in providing custody services for cryptocurrencies, as these assets are typically treated as off-balance sheet items. The bill garnered support from 21 Democrats, alongside 207 Republican votes, resulting in a 228 to 182 passage in the House.
However, President Biden voiced staunch opposition to the bill, signaling his intent to veto it. The White House issued a statement expressing concerns that overturning SAB 121 would undermine the SEC's regulatory efforts aimed at safeguarding investors in the crypto market and the broader financial system. The administration warned that such actions could lead to financial instability and market uncertainty.
Introduced by the SEC in March 2022, SAB 121 established accounting standards for institutions intending to custody crypto assets. Contrary to popular belief, the bulletin actually prohibited banks from hosting crypto assets on behalf of their clients. SEC Commissioner Hester Peirce criticized SAB 121, arguing that it discouraged regulated banks from offering custodial services for cryptocurrencies and created an unequal treatment of crypto assets compared to traditional ones.
In response to the bill's passage, the House Financial Services Committee (HFSC) highlighted its role in enhancing consumer protection and eliminating barriers that hinder regulated financial institutions from acting as custodians of digital assets. HFSC Chairman Representative Patrick McHenry criticized SAB 121 as an example of regulatory overreach, asserting that it epitomized Gary Gensler's tenure as SEC Chairman.
