The SEC's Staff Accounting Bulletin (SAB) No. 121 would be overturned by legislation H.J.Res. 109, which was just passed by the Senate. This would prohibit highly regulated financial institutions from holding Bitcoin and other cryptocurrencies. By a vote of 60 to 38, the legislation was approved, indicating support from both parties.
SAB 121 is to be repealed according to the resolution, which was already approved by the House last week.
H.J.Res. 109
Financial institutions are effectively prohibited from serving as custodians for digital assets like Bitcoin by the strict restrictions imposed by this bulletin. H.J.Res. 109 aims to eliminate these obstacles in accordance with the Congressional Review Act, allowing highly regulated financial institutions to provide custody services for Bitcoin and other cryptocurrencies.
However, the White House has stated clearly what it thinks of this legislation.
🚨 What’s next for SAB 121? 🚨
— The Digital Chamber (@DigitalChamber) May 20, 2024
With H.J. Res 109 passing the Senate 60-38, it’s now on President Biden’s desk. He has until May 28 to decide:
1️⃣ Veto it? Unlikely that Congress has the votes to override.
2️⃣ Sign it? Nullifies SAB 121.
3️⃣ Do nothing?
Learn more here 👇 pic.twitter.com/YuByS18etH
It was stressed in a recent statement that President Biden would veto the bill if it made it to his desk. SAB 121's overturn, according to the administration, would "disrupt the SEC's work to protect investors in crypto-asset markets and to safeguard the broader financial system."
However, supporters of H.J.Res. 109 contend that SAB 121 must be overturned in order to safeguard American consumers. A large portion of this is related to the group of spot Bitcoin Exchange Traded Funds (ETFs) that the SEC allowed to trade earlier this year.
There are centralization risks because a small number of institutions are holding the majority of these bitcoins. In an effort to allay worries about centralization, H.J.Res. 109 aims to lower obstacles so that more strictly regulated organizations may accept custody of and hold bitcoin on behalf of clients.
On another note, the SEC's SAB 121 regulation is criticized by some as being unduly onerous and impeding financial institutions' capacity to satisfy the expanding market for Bitcoin services.
They feel that because regulated institutions already have security procedures and compliance frameworks in place, they are adequately prepared to manage the risks involved in digital asset custody.
Sen. Cynthia Lummis, a strong supporter of Bitcoin, pleaded with her earlier today to support the repeal of SAB 121, stressing that:
SAB 21 is a rule under the administrative procedure act, disguised as an accounting guidance. It was published by the SEC staff without the approval of the majority of the commission.
Senator Cynthia Lummis
But Senator Elizabeth Warren urged the Senate to vote against it, arguing that this is a completely different asset class than what banks and other regulated financial institutions are used to.
She did this by endorsing Joe Biden's position. She also used the hacks of cryptocurrency exchanges FTX and Binance as evidence to argue that since digital assets are entirely online and not something that banks can store in a vault, they are susceptible to hacking.
Discouraged that President Biden issued a Statement of Administration Policy saying he would veto H.J. Res 109, the Joint Resolution to nullify the SEC's Staff Accounting Bulletin (SAB) 121.
— Cody Carbone (@CodyCarboneDC) May 8, 2024
SAB 121 effectively prohibits trusted custodians from being able to manage digital… pic.twitter.com/QIb1wqXTAF
H.J.Res. 109 was approved by the Senate, but its fate is still unknown because the president has threatened to veto it.
Should President Biden fulfill his pledge, the resolution would not proceed further and the current state of affairs concerning financial institutions' custody of digital assets would be upheld.
Moreover, Biden can choose to veto the bill, sign it into law, or take no action at all. In the event that he makes no decision, the bill becomes enforceable without his signature.
Journalist Eleanor Terrett of Fox Business offered her analysis of the development, saying:
The Senate has voted to overturn SAB 121 which, as we all know, means this now heads to the President who said last week he plans to veto it. If so, then it’s back to square one with the House & Senate which would need a 2/3 majority vote in both chambers to override the veto.
Journalist Eleanor Terrett of Fox Business
Proponents of H.J.Res. 109 believe repealing the bulletin is crucial to mitigate centralization risks and allow highly regulated institutions to safely manage digital assets.
As the crypto industry continues to evolve, it becomes increasingly important to establish clear and balanced regulations. These regulations remains essential for safeguarding investors, promoting innovation, and encouraging broader adoption of digital currencies.