The HSFC, or House Financial Services Committee, has recently made a move to address a resolution aimed at reversing a regulation set by the SEC, or United States Securities and Exchange Commission, that has impeded banks’ capability to provide cryptocurrency custody services.
At a hearing held on February 29, the resolution received approval from both ends of the political spectrum, as 31 members voted in support and 20 voted against.
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The focus of the resolution is on SAB 121, introduced by the SEC in March 2022, which pertains to the classification of cryptocurrency assets as liabilities on balance sheets for institutions.
The HSFC states that eliminating SAB 121 would eliminate obstacles preventing regulated banks from serving as custodians for digital assets, ultimately enhancing consumer protection.
.@SECGov has virtually locked out the most regulated institutions from serving as custodians for digital assets. It’s time to roll back SAB 121 and to stop @GaryGensler’s overreach. pic.twitter.com/n3xWRhPMWq
— Rep. Mike Flood (@USRepMikeFlood) February 29, 2024
On February 1st, Congressman Mike Flood of the Republican party and Representative Wiley Nickel of the Democrat party jointly put forth a resolution criticizing SAB 121 for its unjust treatment of banks looking to provide crypto custody services.
Flood emphasized the potential consequences of forcing banks to include these assets on their balance sheets, which would impact their regulatory responsibilities regarding capital and liquidity requirements.
According to the resolution, SAB 121 exceeds the usual scope of an accounting bulletin and essentially operates as a statute. As a result, it requires approval from both the House and the Senate in order for SAB 121 to be invalidated.
Furthermore, according to Tom Emmer, a Republican Congressman who is supportive of cryptocurrency, SAB 121 is an unjust display of SEC Chair Gary Gensler’s prejudice towards the digital asset industry.
Emmer highlighted the potential dangers of not having banks provide custodial services for authorized Bitcoin ETFs, which he considers to be a risky move.
Meanwhile, Maxine Waters, a Democratic Congresswoman and a vocal opponent of the resolution, characterized the attempt to revoke SAB 121 as contradictory, given the Republican party and the cryptocurrency sector’s consistent demands for more distinct directives from the SEC.
Waters stressed that the resolution would ironically impede the SEC staff’s ability to offer essential clarity on regulations for cryptocurrencies.
SAB 121 and other Staff Accounting Bulletins are not legally binding, but instead serve as recommendations to help businesses properly account for their customer’s cryptocurrency holdings. Unlike formal regulations, these guidelines do not undergo a public review and feedback process.
Good news: @FinancialCmte just voted to repeal SAB 121, the SEC’s unlawful rule requiring custodians to double-count crypto liabilities on their balance sheets.
Bad news: that’s likely the end of the story in Congress. Getting repeal done is nearly impossible.
Lawsuit or bust. https://t.co/4X4mGW7Nl4
— Jake Chervinsky (@jchervinsky) February 29, 2024
The latest development is that Hester Pierce, a member of the Securities and Exchange Commission (SEC) and nicknamed ‘Crypto Mom’, has expressed support for greater decentralization within the American financial system and a more relaxed stance on regulating and enforcing cryptocurrencies.
During his speech at the ETHDenver conference on February 29th, Pierce stated that decentralization has the potential to enhance the resilience of the financial system by diminishing concentration risks.
The US House Committee is also taking steps to reverse a SEC regulation that restricts banks from providing custody services for cryptocurrencies.
Conclusion
In summary, the House Financial Services Committee’s recent action represents a crucial step towards potentially altering the SEC’s approach to regulating digital asset custody through SAB 121.
Both Democrats and Republicans in the committee agree that this rule is a problem and want to get rid of it as it would help protect people who use cryptocurrencies. Some people worry that changing this rule could make things confusing, but others believe it’s necessary for the cryptocurrency market to grow.
Overall, the committee’s efforts show a push towards making it easier for banks to work with cryptocurrencies. This also further indicates evolving attitudes towards cryptocurrency regulation within the American financial system.
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