President Biden’s SAB 121 Veto Survives US House Challenge: What’s Next For Crypto Regulation?
The US House will vote to overturn SAB 121 - Will Biden follow? | Credit: Samuel Corum/Getty Images
Key Takeaways
- The US House of Representatives failed to override President Joe Biden’s veto, maintaining the SAB 121 intact.
- Mike Flood and others continue to seek alternative methods to challenge SAB 121, aiming to facilitate digital financial growth by removing governmental barriers.
- Critics argue that SAB 121 hampers financial institutions’ ability to engage with crypto companies.
- Despite his veto, Biden’s administration aims to collaborate with Congress on regulations supporting the responsible growth of digital assets.
House Fails to Override Biden’s Veto, SEC’s Crypto Accounting Policy Kept Intact
On July 11, 228 House members voted for HJ Res. 109 to end SAB 121, while 184 voted against the resolution, and 21 abstained. Despite the majority support for overturning SAB 121, the vote fell short of the required two-thirds majority to counter President Biden’s veto.
SEC to Allow Banks to Avoid Reporting Customer Crypto Holdings on Balance Sheets?
The debate over the SEC’s crypto accounting policy nearly became moot this week, according to Rep. Maxine Waters (D-Calif.). She mentioned that the SEC has been negotiating with banking industry representatives about “targeted modifications” to the policy and “may be close to reaching an agreement.”
Banks consulting with SEC staff have received approval to bypass balance sheet reporting by ensuring customer assets are protected in case of bankruptcy and implementing internal safeguards.
Growing Opposition to SAB 121 as Over 20% of Americans Invest in Crypto
More than 20% of Americans actively invest in cryptocurrency, necessitating investor-friendly regulation. The SAB 121 bill faces criticism from both private companies and banking sectors for restricting banks from offering crypto custody. Eliminating this rule could enhance adoption and participation in the industry.
The Bank Policy Institute , American Bankers Association , and others have urged SEC Chairman Gary Gensler to modify SAB 121, arguing that preventing banks from offering crypto custody pushes investors towards public companies lacking regulatory oversight, thereby affecting asset safety and stability.
Conversely, some argue that SAB 121 is essential for clarity and security, addressing issues like taxation and market stability and providing higher stability for top cryptocurrencies like Bitcoin and Ethereum.
Previously, in May, the House voted 228-182 to overturn SAB 121, with support primarily from Republicans and 21 Democrats. Following this, the Senate passed the measure with a vote of 60 to 38, which included affirmative votes from several Democrats, such as Senate Majority Leader Chuck Schumer from New York.
Congress Votes to Overturn SEC’s Crypto Custody Rule, Biden Veto Expected
The US Senate passed a measure in May to overturn a Securities and Exchange Commission (SEC) bulletin that sets accounting standards for firms holding cryptocurrencies.
The House voted 228-182 in favor of repealing SEC Staff Accounting Bulletin 121 (SAB 121). However, this tally also fell short of the two-thirds majority required to override a presidential veto.
The measure also passed the Senate but was already then expected to face a veto from the president. A statement said Biden believed that restricting the SEC’s regulatory capacity over crypto assets would lead to significant financial instability and market uncertainty.
During the debates leading up to the vote, Senator Elizabeth Warren of Massachusetts, who opposed the measure, highlighted that cryptocurrencies carry unique risks.
She said:
“We have seen multiple hacks of crypto platforms. The unique risks of crypto can create liabilities that seriously impact a company’s financial condition. SAB 121 simply clarifies how companies should account for those risks in their financial disclosures. That’s all it’s doing.”
Congressional Challenge to SEC Crypto Regulation Signals Growing Support for Industry
The resolution to overturn the SEC’s crypto regulation saw bipartisan support, with a dozen Democrats joining the majority of Republicans, securing it well past the simple majority required for passage. Despite this support, the vote count was insufficient to make it veto-proof. Notably, Senate Majority Leader Chuck Schumer (D-NY) deviated from party leadership by opposing the SEC’s stance on crypto.
Senator Cynthia Lummis (R-Wyo.), a prominent advocate for the resolution in the Senate, criticized the bulletin as “a disaster” that failed to protect consumers. She said: “This is a win for financial innovation and a clear rebuke of the way the Biden administration and Chair Gary Gensler have treated crypto assets.”
The vote marked a historic moment because it was the first time both chambers of Congress have passed standalone crypto legislation.
Democratic Senator Kirsten Gillibrand said she supported the resolution. She claimed the rule enforced an unconventional accounting method.
Gillibrand said:
“The rule was issued without proper consultation with the respective regulatory agencies or Congress and without going thru a proper notice and comment period. More importantly, it imposes an accounting approach that deviates from established standards, forcing financial institutions to count their customers’ digital assets as their own. This will limit options for consumers and leave them with less, not more consumer protection in cases of bankruptcy.”
Urging SEC to Reconsider Crypto Rule Amidst Bipartisan Support
Wiley Nickel wrote to SEC Chairman Gary Gensler on Wednesday, May 15. In it, Nickel said he had tried to arrange a meeting to discuss the bulletin with Gensler’s office but had not received a reply.
He urged Gensler to withdraw SAB 121 to safeguard investors and the financial system, enhance American competitiveness, and honor Congress’s role in the rulemaking process. Nickel emphasized that withdrawing SAB 121 would allow custodial banking of digital assets. This, he argued, would represent a significant step towards a balanced regulatory approach to cryptocurrency.
Ron Hammond, the director of government relations at the Blockchain Association, said: “The threat of a presidential veto remains. We encourage the veto to be reconsidered, allowing this harmful, anti-crypto provision to be struck down.”
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