Congress rejects the SEC’s proposal to record customers’ crypto assets in custodian accounts as liabilities

What’s new? The US House of Representatives and then the US Senate passed a resolution to withdraw the Securities and Exchange Commission’s (SEC) accounting bulletin that affected cryptocurrencies. The initiative will now go before President Joe Biden, whose administration, on the other hand, is seeking to keep the SEC requirement in place. The president can veto congressional action, leaving the initiative in place.

Material by The Block

What else is known? SEC bulletin number SAB 121 was first published in 2022 and has been controversial over the past year due to industry concerns as the document could limit banks’ ability to deal with digital assets. Under SAB 121, custodial firms were required to record customers’ crypto assets as liabilities on their balance sheets.

In the House of Representatives, 228 officials opposed SAB 121, while 182 were in favor of retaining it; in the Senate, 60 voted against SAB 121 and 38 supported it.

Despite the fact that the SEC initiative was rejected by a majority in both houses of parliament. The number of votes of its opponents was insufficient to override the presidential veto in case Biden decided to leave the initiative in force. A veto is overridden by a 2/3 vote.

Thus, last week, the White House warned that Biden would veto the decision of Congress. The statement said that “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.”

The SEC itself states that SAB 121 is merely a guide for companies to increase transparency and provide more information for investors to assess risk. The commission cited the numerous bankruptcies of crypto platforms, which have resulted in clients trying to recover lost assets in court, as well as the opaque balance sheets of some firms.

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Last year, the Financial Accounting Standards Board (FASB) issued guidance that allows companies with personal cryptocurrencies on their balance sheets to measure them at fair value and recognize those changes in net income each reporting period. The new rules are effective January 1, 2025, but early implementation is permitted.