House passes resolution to invalidate SEC’s SAB 121, guidance on banking in the crypto sector

The House of Representatives in the United States has approved a bill that reverses the controversial guidance issued by the Securities and Exchange Commission (SEC) that prevented banks from holding cryptocurrencies. However, President Joe Biden has warned that he will veto the bill if it reaches his desk. The House voted in favor of the bipartisan bill titled H.J. Res 109, which overturns the SEC’s Special Accounting Bulletin 121 (SAB 121). This bulletin required banks to include their customers’ crypto assets on their balance sheets, unlike traditional assets such as securities. Republican Representative Mike Flood, who introduced the resolution, argued that SAB 121 was unfair to banks that wanted to custody crypto assets, as custodial assets are typically considered off-balance sheet. Interestingly, 21 Democratic Party members voted in favor of the bill, and combined with the 207 Republican votes, the bill passed with 228 votes to 182. Despite the bill’s approval in the House, President Biden has expressed his intention to veto it. The White House released a statement on May 8 expressing strong opposition to overturning SAB 121, stating that it would disrupt the SEC’s efforts to protect investors in the crypto-asset market and safeguard the broader financial system. SAB 121, introduced by the SEC in March 2022, outlines accounting guidelines for institutions that want to custody crypto assets. However, it effectively prevents banks from acting as custodians for cryptocurrencies on behalf of their clients. U.S. lawmakers and SEC Commissioner Hester Peirce have argued that SAB 121 deters regulated banks from acting as crypto custodians and treats crypto holdings differently from other assets. The House Financial Services Committee (HFSC) stated that the bipartisan resolution overturning SAB 121 would protect consumers by removing obstacles that prevent regulated financial institutions from acting as custodians of digital assets. HFSC Chairman Representative Patrick McHenry criticized SAB 121 as an example of regulatory overreach during Gary Gensler’s tenure as SEC Chairman. This is an ongoing story, and additional information will be provided as it becomes available.