House to Vote Against SEC Crypto Rule, Biden Promises Veto

Key Takeaway

• House votes to reject SEC's crypto policy (SAB 121), criticized for deterring banks from crypto, but faces Biden's veto threat.
• SAB 121's handling as staff guidance instead of a rulemaking process has sparked bipartisan legislative efforts for reversal.
• Biden defends SEC, citing financial stability concerns; overturning could limit SEC’s future regulatory capabilities on crypto-assets.

SEC Crypto Guidance Faces Congressional Challenge

The U.S. House of Representatives is gearing up for a pivotal vote on a resolution aimed at overturning the Securities and Exchange Commission's (SEC) controversial cryptocurrency accounting guidance, known as Staff Accounting Bulletin No. 121 (SAB 121). This guidance has been a point of contention, with critics arguing it deters banks from engaging with crypto customers by requiring them to list customer-held digital tokens on their balance sheets, potentially leading to significant capital expenses. Rep. Mike Flood (R-Neb.), the resolution's sponsor, criticized SEC Chair Gary Gensler for not consulting banking regulators and accused him of using the guidance to exclude large banks from the crypto custody market. Despite the House's efforts, President Joe Biden has signaled a strong opposition, promising a veto should the resolution pass, citing the guidance's role in addressing risks that have led to consumer losses.

White House and SEC Defend the Guidance

The White House and SEC Chair Gary Gensler stand firm in their defense of SAB 121, highlighting its importance in mitigating technological, legal, and regulatory risks within the crypto sector. President Biden emphasized the necessity of the SEC's work in ensuring financial stability and market certainty, especially in the volatile realm of crypto-assets. This stance is in stark contrast to the views of Republican lawmakers and digital asset businesses who see the guidance as an overreach and a hindrance to the integration of crypto services by traditional financial institutions.

Bipartisan Efforts and Legislative Implications

The resolution to reject SAB 121, introduced by Rep. Flood alongside two Democrats, underscores the bipartisan nature of the issue, with Sen. Cynthia Lummis (R-Wyo.) advocating for a similar measure in the Senate. The use of the Congressional Review Act to reverse the SEC's rule highlights the potential permanent impact on the SEC's future regulatory capabilities regarding crypto-assets. Critics like Rep. Maxine Waters (D-Calif.) argue that the resolution is an overreaction that could undermine necessary crypto disclosures and the SEC's ability to regulate the industry effectively.

Crypto Mixers and Regulatory Scrutiny

In parallel to the debate over SAB 121, several House Democrats, led by Rep. Sean Casten (D-Ill.), are preparing legislation to target money laundering through cryptocurrency mixing services. This move reflects ongoing efforts to clamp down on illicit finance within the crypto space, amidst broader discussions on the industry's regulatory landscape. The proposed bill, although facing challenges in a Republican-majority House, signifies the legislative focus on combating the misuse of crypto technologies for illegal activities.

Management Quotes

• Gary Gensler, Chair of the SEC:

  "SAB 121 was issued in response to demonstrated technological, legal, and regulatory risks that have caused substantial losses to consumers."

• President Joe Biden:

  "Strongly opposes" disrupting the SEC's work on this. "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."