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Members Of Congress from Both Chambers Call on SEC to Drop Controversial Crypto Rule
- Members of Congress have penned a series of letters to US regulators demanding they amend, or completely wipe, the controversial SAB 121 rule.
- SAB 121 forces banks to list their clients’ crypto holdings as liabilities, making them expensive to manage in comparison to other assets.
- The SEC has demonstrated some willingness to soften their stance, with BNY Mellon granted an exemption to begin its own crypto custody service.
- Industry commentators believe removing SAB 121 could unlock a whole new range of institutional involvement in the crypto sphere.
Calls for revamped crypto regulation are heating up across the globe, with industry leaders urging policy-makers to bring digital asset frameworks into the modern era. Several nations have fallen into the trap of applying traditional finance laws to crypto products, which many in the community believe stifles progression and causes uncertainty among Web3 innovators.
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The latest outcry comes from Republican members of Congress, who have sent letters to regulators “demanding” communication regarding Staff Accounting Bulletin 121.
What is SAB 121 and Why Are Politicians Up in Arms About it?
SAB 121 was introduced a few years back in April 2022, and required US exchanges and other crypto custodians to list their customer’s assets as “liabilities”.
In short, this legislation precludes banks from offering custody of digital assets to clients. In traditional finance, assets held on behalf of customers aren’t considered liabilities – in fact, they aren’t present on the company’s balance sheet.
But according to the SEC, they should be treated differently because of the unique risks cryptocurrencies pose. Regarding banks, SAB 121 requires them to match any crypto holdings (even on behalf of customers) with “regulatory capital” – which is incredibly unappealing to most institutions.
This significantly limits the custody options available to crypto investors, forcing them to use complex wallets or less-than-stellar solutions like exchange wallets (which introduce counterparty risk as we saw with FTX’s 2022 collapse).
The letter penned by Republican members of Congress echoes these sentiments:
…Staff Accounting Bulletin (SAB) 1212 imposes burdensome and impractical requirements on regulated financial institutions seeking to offer digital asset custodial services to their customers…our concerns surrounding the lack of interagency communication leading up to SAB 121’s publication continues to increase.
Letter penned by Republican Members of Congress
Exemptions for SAB 121 Possible: Can Banks Finally Stretch Their Wings?
The SEC is already in hot water over a lack of communication, as the regulatory body currently faces trial over its unwillingness to explain or amend several of its decision-making processes.
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However, it’s not all bad news with SAB 121, as the SEC has demonstrated some appetite to soften the policy’s implementation for certain banks.
An announcement earlier this week from BNY Mellon, one of the nation’s largest custodial banks, promised crypto custody services to institutional clients.
Although there are several hoops for the institution to jump through to receive a special exemption from SAB 121, it at least proves there is some flexibility when it comes to the policy.
Completely wiping the regulation may not be realistic, but increased pressure from politicians and industry leaders could help see custodial banks, forced to sit on the sidelines, finally awake from their dormancy.
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Author
Ben Knight
Ben Knight is a writer and editor from Melbourne with a passion for all things music and finance. He enjoys turning complex topics – especially the technical details of cryptocurrency – into digestible bites that anybody can understand. He acquired his Master’s in Writing, Editing and Publishing from RMIT in 2019 and has run his own creative writing business ever since.
