US Senate scraps SEC crypto policy, but Biden says he’ll veto: SAB 121 explained

Lawmakers,
crypto
heavyweights
and
banking
executives
argue
that
a
SEC
policy
on
crypto
custody
and
accounting
harms
U.S.
investors
and
stifles
innovation,
but
Joe
Biden
disagrees.

Washington
is
gearing
up
for
an
almighty
fight
about
a
controversial

SEC
ruling.

There
was
a
significant

breakthrough
last
week
when
the
House
of
Representatives
voted
to
repeal
Staff
Accounting
Bulletin
(SAB)
121.

What
is
SAB
121?

SAB
121
requires
public
companies
to
account
for
and
disclose
the
obligations
and
risks
of
safeguarding
customers’
crypto
assets.
The
policy
is
controversial
due
to
its
potential
to
complicate
financial
reporting
and
increase
operational
burdens.

These
rules
were
implemented
in
2022
and
have
drawn
fierce
criticism
from
across
the
crypto
industry,
as
well
as
from
banks
who
claim
the
measures
have
effectively
stopped
them
from
offering
digital
asset
services.

The
US
Senate
voted
on
May
16
to
overturn
the
SEC
guidelines,
but
SAB
121
critics
are
not
out
of
the
woods
yet.

The
Senate
ruling
still
needs
to
receive
presidential
approval.
However,
President
Joe
Biden
has
declared
that
he
is
prepared
to
veto
the
resolution
to
scrap
SAB
121
altogether.
A
statement
from
the
White
House
made
clear
the
administration
support
of
SAB
121,
saying: 

“SAB
121
was
issued
in
response
to
demonstrated
technological,
legal,
and
regulatory
risks
that
have
caused
substantial
losses
to
consumers
…
Limiting
the
SEC’s
ability
to
maintain
a
comprehensive
and
effective
financial
regulatory
framework
for
crypto-assets
would
introduce
substantial
financial
instability
and
market
uncertainty.”

White
House
statement

SEC
faces
pushback

Some
Democratic
lawmakers
have
been
urging
SEC
chair
Gary
Gensler
to
withdraw
SAB
121
of
his
own
accord,
rather
than
wait
for
Congress
to
do
it.

One
of
them
is
Congressman
Wiley
Nickel,
the
representative
for
North
Carolina’s
13th
District,
who
says
he’s
confident
that
Joint
Resolution
109
will
pass
the
Senate.

Nickel
argues
that
getting
rid
of
SAB
121
would
better
protect
investors
and
ensure
that
the
U.S.
is
competitive
on
a
global
stage.
Banks
with
a
strong
track
record
of
providing
fiat
custody
services
would
be
able
to
extend
their
offering
to
crypto.
Seeing
as
crypto
projects
like

Voyager
and

Celsius
failed
to
protect
their
customer
assets
even
after
SAB
121
was
enforced,
some
have
argued
that
the
regulation
was
ineffective
from
the
beginning.

In
a

letter
to
Gensler,
Congressman
Nickel
stated:

“The
SEC’s
open
hostility
toward
the
digital
assets
industry
isn’t
serving
President
Biden’s
best
interests.
The
SEC
is
turning
cryptocurrency
regulation
into
a
political
football
and
forcing
President
Biden
to
choose
sides
on
an
issue
that
matters
to
many
Americans.”

Congressman
Wiley
Nickel

Nickel
warned
Gensler
that
SAB
121
amounts
to
a
“prohibitively
expensive
regulatory
burden”
—
and
means
U.S.
consumers
have
little
choice
but
to
rely
on
“riskier
offshore
custody
solutions.”

Nickel
went
on
to
criticize
the
SEC’s
approach
to
digital
assets
as
“misguided”
—
and
pointed
to
concerns
about
how
SAB
121
was
enforced.
While
staff
accounting
bulletins
are
traditionally
meant
to
serve
as
guidelines
on
best
practices,
he
accused
the
commission
of
a
“breach
of
the
rulemaking
process”
because
of
how
one
was
used
to
enact
new
policies.

‘Insanity’
—
Consulting
Firm
Founder
Blames
SAB
121
for
FTX
Debacle

Austin
Campbell,
the
founder
of
Zero
Knowledge
Consulting,
has
described
SAB
121
as
“insanity”
—
not
least
because
it
was
“unilaterally
adopted
with
no
consultation”
and
“damages
the
rights
of
crypto
holders
in
a
bankruptcy.”
Campbell
took
to
social
media,

stating:

“It’s
entirely
possible
this
rule
is
part
of
what
caused
FTX,
as
without
it,
there
could
have
been
regulated
custodians
in
the
U.S.
serving
customers
and
exchanges,
which
would
have
prevented
the
self-dealing
and
theft.”

Austin
Campbell

He
went
on
to
warn
that
major
financial
institutions
strongly
dislike
SAB
121
because
they
are
being
locked
out
of
growing
demand
for
exchange-traded
funds
based
on
Bitcoin’s
spot
price.

Cardano
founder
Charles
Hoskinson
has
also
been
highly
critical
of
Biden’s
stance
on
digital
assets
—
claiming
his
administration
has
been
attempting
to
destroy
the
U.S.
crypto
sector.

He
went
on
to
argue
that
it’s
inappropriate
for
the
SEC
to
use
90-year-old
legislation
to
regulate
crypto,
and
the
heavy-handed
approach
to
regulation
has
already
forced
a
number
of
legitimate
exchanges
and
trading
platforms
to
move
elsewhere
—
benefitting
rival
economies
through
job
creation
and
tax
revenues.

With
a
veto
looming
on
the
horizon,
this
saga
is
far
from
over.
It’s
going
to
be
interesting
to
see
how
lawmakers
on
Capitol
Hill
—
not
to
mention
industry
leaders
in
TradFi
and
crypto
—
react.