Key facts:
According to the congressmen, this regulation turns the capacity of cryptocurrency custody “upside down.”
They criticise that the regulations were issued without consulting any of the prudential regulators.
In a letter to Securities and Exchange Commission (SEC) Chairman Gary Gensler, a group of 42 Republican lawmakers, led by Patrick McHenry (R-NC) and Senator Cynthia Lummis (R-WY), called for the immediate repeal of SAB 121. The regulation, officially known as Staff Accounting Bulletin 121, has been called “disastrous” by lawmakers due to its implications for the custody of digital assets.
The lettersubmitted ahead of a scheduled full SEC hearing, argues that SAB 121 “upends digital asset custody rules, weakens consumer protections, and stifles financial innovation.”
Lawmakers say the legislation was passed without consultation with prudential regulators, which violates the rulemaking process required by the Administrative Procedure Act (APA).
“(The rule) would require custodians to recognize a liability and maintain a corresponding offset on their balance sheets, measured at the fair value of the customer’s digital assets. This accounting approach would not accurately reflect the custodian’s underlying legal and economic obligations and would put consumers at greater risk of loss,” the letter states.
SAB 121, issued by the SEC in March 2022, prevents banking entities from holding cryptocurrencies by requiring these entities to recognize such assets as liabilities on their balance sheetsreflecting the risks associated with the custody of digital assets.
Republicans argue that “issuing staff directives to impose policy changes is inappropriate and violates both the spirit and the letter of the Administrative Procedure Act.”
“We urge you to rescind SAB 121 and work with Congress to ensure that Americans have access to safe and secure custody arrangements for digital assets,” the congressmen stressed.
Congressman McHenry and Senator Lummis, along with other legislators, underscore the need to review and repeal this rule, citing that “rescinding SAB 121 is the only appropriate action and is within the SEC’s authority. There is ample precedent for revising a staff accounting bulletin.”
Michael Saylor, president of MicroStrategy and a well-known figure in the Bitcoin ecosystem, commented on the initiative, stating that “Congress believes that banks should be able to hold custody of bitcoin.” This reflects the sentiment of many in the industry that financial institutions should have the ability to offer custody for cryptocurrencies under an appropriate regulatory framework.
This request from Republican lawmakers reflects a growing tension between cryptocurrency innovation and traditional financial regulation, and highlights the difficulties in finding a balance between consumer protection and promoting technological innovation in the US financial market.
This article was created using artificial intelligence and edited by a human on the editorial staff.
