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Senate Passes Bill to Overturn SEC Rule That Makes Firms Treat Customers Crypto Like Their Own – White House to Veto

Last Updated 35 seconds ago
Teuta Franjkovic
Last Updated 35 seconds ago
By Teuta Franjkovic
Verified by Peter Henn

Key Takeaways

  • The US Senate passed a measure support to overturn the SEC’s crypto accounting standards.
  • Both chambers of Congress have now approved the measure to overturn the SEC’s rule.
  • The bill now heads to President Joe Biden, who is expected to veto it.

The US Senate passed a measure  to overturn a Securities and Exchange Commission (SEC) bulletin that sets accounting standards for firms holding cryptocurrencies.

The bill, which received a 60 to 38 vote with support from several Democrats, now heads to President Joe Biden’s desk. It is likely the White House will veto it, however. This is because the Senate’s vote count falls short of the threshold needed to override a presidential veto.

Congress Votes to Overturn SEC’s Crypto Custody Rule, Biden Veto Expected

Last week, 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. SAB 121, introduced in 2022, has been contentious within the crypto industry. This is because it orders firms looking after crypto to treat customer holdings as liabilities on their financial statements. Critics, however, argue this could deter banks from looking after digital assets.

The measure also passed the Senate but is expected to face a veto from the president. A statement said Biden believes 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 marks a historic moment, because it is the first time both chambers of Congress have passed standalone crypto legislation.

Mike Flood (R-NE), one of the resolution’s architects, described  the vote as a “landmark result,” highlighting the bipartisan support it garnered.
He said :
“It is clear there is overwhelming opposition to SAB 121, and I urge President Joe Biden to reconsider his previous statement of intent to veto the resolution. The President should sign my resolution to ensure the SEC reverses course and sets America on a path to growing our digital financial future.”

Congress Moves to Block SEC from Reissuing Crypto Regulations

Using the Congressional Review Act to nullify the policy, lawmakers wanted to make sure the SEC could not propose similar regulations in the future.

House resolution co-sponsor Wiley Nickel (D-NC), said , however that resorting to the Congressional Review Act was unnecessary. He  reiterated his call for the SEC to retract the bulletin before it reached President Biden’s desk.

He said: “Today’s Senate vote to repeal SAB 121 sends a clear bipartisan message. Congress will not stand idly by as Gary Gensler and the SEC deliberately sidestep the statutory rulemaking process and overstep their regulatory authority.”

This legislative action represents one of the few times Congress has directly addressed cryptocurrency regulation. Previously, a crypto taxation provision included in an infrastructure law, which also faced industry opposition.

Kirsten Gillibrand Slams SEC Rule for Undermining Consumer Protections

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.”

Staff Accounting Bulletin 121  was supposed to clarify how businesses should handle crypto assets. It recommended companies include them on their balance sheets. However, critics say it discourages major custodians and other entities from managing crypto on behalf of customers.

White House to Veto Resolution Limiting SEC’s Crypto Powers?

If President Joe Biden signs the resolution, it would not only reject the bulletin but also prevent the SEC from issuing similar guidelines in the future. Despite this, the White House has threatened to veto the resolution.

The veto notice says:

“It could also inappropriately constrain the SEC’s ability to ensure appropriate guardrails and address future issues related to crypto-assets including financial stability.”

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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