The House Financial Services Committee (HSFC) has voted in favor of a resolution that seeks to overturn a United States Securities and Exchange Commission guideline that has prevented banks from getting in on crypto custody.
In a Feb. 29 markup hearing, 31 HSFC members from both sides of the political aisle voted in favor of the resolution, with 20 members voting against it.
"By overturning SAB 121, the Resolution will ensure consumers are protected by removing roadblocks that prevent highly regulated banks from acting as custodians of digital assets," said the House Financial Services Committee in a statement.
The SEC’s Staff Accounting Bulletin No. 121 — introduced in March 2022 — is a set of guidelines that requires institutions that custody crypto assets to record crypto holdings as liabilities on their balance sheets.
Republican congressman Mike Flood — the lawmaker who introduced the resolution — said that the SAB 121 was unfair for banks looking to custody crypto, as custodial assets are “always considered off-balance sheet,” which includes securities and digital assets such as Bitcoin.
“The ramifications of requiring banks to hold these assets on-balance sheet are pretty significant.”
“If a bank were to custody digital assets according to the parameters of SAB 121, the on-balance sheet treatment would affect their other regulatory obligations like their capital and liquidity requirements,” Flood added.
The resolution was introduced on Feb. 1 by Flood and Democrat representative Wiley Nickel, and says that SAB 121 went “beyond the scope of an accounting bulletin” and had effectively become a de-facto law.
There is bipartisan agreement SAB 121 undermines consumer protection and leaves customers' digital assets vulnerable.
— Patrick McHenry (@PatrickMcHenry) February 1, 2024
I look forward to getting this measure across the finish line to overturn it.
Thanks to @USRepMikeFlood, @RepWileyNickel, and @SenLummis for your leadership. https://t.co/otlpBnnMWW
Notably, the resolution still needs to pass a full floor vote in the House and the Senate before SAB 121 is thrown out.
Speaking at the markup hearing, crypto-friendly Republican Congressman Tom Emmer said that SAB 121 was an “illegal” example of SEC Char Gary Gensler’s “unrelenting prejudice towards the digital asset ecosystem.”
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Emmer said SAB 121 introduced “unnecessary and avoidable” concentration risk into the crypto ecosystem.
“The Bitcoin ETFs are a great example. Not a single bank provides the custodial services for any of the eleven approved ETFs. This is risky,” he added.
.@GaryGensler is violating the SEC’s statutory mission with SAB 121.
— Tom Emmer (@GOPMajorityWhip) February 29, 2024
We must pass @USRepMikeFlood's resolution so Chair Gensler’s illegal rule ceases to be in effect.
See my remarks on the resolution below. pic.twitter.com/cn8HQV2cAb
On the other hand, Democrat Congresswoman Maxine Waters, one of the lawmakers who voted against the resolution, said that the move to rescind SAB 121 was an “ironic” move from crypto-friendly politicians.
“We often hear Republicans and the crypto industry complain about a lack of clarity from the SEC, but ironically, the resolution before us effectively blocks the SEC staff from providing that clarity around crypto,” she said.
SABs are not enforceable laws under the SEC’s purview. Instead, they are a series of non-binding guidelines used by SEC staff to help companies clarify how crypto firms should account for customer crypto holdings.
SABs do not require public notice or comment periods like other more formal rules.
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