Vote to repeal SEC's cryptocurrency custody policy

The House of Representatives passed House Joint Resolution 109 (H.J.Res. 109) with 207 Republicans and 21 Democrats voting in favour and 182 Democrats voting against. This resolution repeals the SEC's accounting policy known as Staff Accounting Bulletin (SAB) 121, which many experts believe has a negative impact on banks' willingness to hold digital assets. Despite the White House saying the president would veto it, 21 Democrats still joined Republicans in voting in favour of the resolution, sending it to the Senate for consideration.

Conversations with Democrats revealed that some are conflicted about the SEC's policies on digital assets and conveyed a message to the cryptocurrency industry to stay in the U.S. and give Congress a chance to come up with the right policies.

Flood, a Democratic representative, noted that one of his colleagues called it the first vote on digital assets and cryptocurrencies in the House. The debate on the floor was not only about the repeal of SAB 121, but also discussed the SEC's approach to digital assets. He stressed that the SEC, while claiming to protect consumers, is actually restricting the holding of digital assets to unregulated non-banks. "Congress is moving forward and the SEC is being left behind," Flood said.

He said President Biden's message of a possible veto shows that he disagrees with the majority opinion and doesn't understand the implications for banks if they are banned from storing cryptocurrency.

"I am encouraged that 21 Democrats joined our side on this issue. It's a big win for us and that's always gratifying," Nickel noted. Speaking about his discussions with other Democrats regarding the bipartisan resolution, Nickel emphasised: "Many of my Democratic colleagues have told me that they think the administration is wrong in its policy on this issue. However, it is difficult for Democrats to support the use of the Congressional Review Act (CRA) against the current administration." The CRA is the law that was used in H.J.Res. 109, and it allows Congress to override a particular agency's rules.

Many Democrats, including House Financial Services Committee member Maxine Waters, have raised objections to the process of using the CRA to overturn a rule. During the debate, Waters noted that Flood and Nickel should have introduced a bill to that effect. Flood responded by noting that the bill had already been introduced earlier and that they had no choice but to go that route. The Uniform Treatment of Custodial Assets Act was introduced in September 2023 and was sponsored by Flood and Nickel, along with four Republican and three Democratic members, making the bill bipartisan.

Nickel expressed support for Flood's position, saying, "I would prefer that there be another mechanism. But the SEC is out of its depth. It's not its purview. We have prudential regulators in charge of banking, and the SEC has not consulted with them about SAB 121."

Asked about the message for the cryptocurrency industry, Flood said, "They should not leave the U.S. They should not consider moving somewhere else. I encourage industry participants to contact their senators and members of Congress on this bipartisan issue."

Flood noted that the process may take some time, but the U.S. will find the right policies. He concluded by calling for a fight: "The cavalry is coming." As for Nickel, he called his fellow Democrats who are against Web3 and digital assets "...the people who were against the Internet 20 years ago." Nickel then expressed hope that the administration and his Democratic colleagues will realise that this resolution will help protect consumers, make it safer to store cryptocurrencies and allow banks to do so.

Conclusion

Overall, the House vote is a significant step forward for the cryptocurrency industry. However, it is unclear whether SAB 121 will be able to be overturned, given a possible presidential veto and resistance from some Democrats.

Q&A

Q: What is SAB 121 and why is it controversial?
A: SAB 121 is Staff Accounting Bulletin (SAB 121), issued by the SEC in 2020. It establishes accounting rules for cryptocurrency held by banks. Supporters of the repeal of SAB 121 argue that it prevents banks from storing cryptocurrency for their customers, which limits access to this new asset category and stifles innovation in the financial industry. Opponents, on the other hand, believe that SAB 121 is necessary to protect consumers from the risks associated with cryptocurrency, which are volatile and speculative assets.

Q: What are the chances that SAB 121 will be repealed?
A: The House of Representatives voted in favour of repealing SAB 121, but for it to become law, it must also be approved by the Senate and signed by the President. The White House has already stated that the President will veto the bill if it passes. There is also uncertainty as to whether all Democrats in the Senate will support the repeal of SAB 121, although 21 have already voted in favour in the House.