Regulation
SEC Crypto Custody Rules Overturned: All Eyes on Biden
In a crucial development, the Senate voted to rescind crypto accounting guidance issued by the SEC that discourages financial institutions from being custodians of digital assets. Now the final decision rests with President Biden. He must decide whether to sign the appeal [and allow the overturn] or veto and support it in the future. If sign Through it, financial institutions will be allowed to hold crypto assets on a large scale. SAB 121 CRA – the first standalone crypto bill ever to pass both houses of Congress – passed the Senate 60-38.
The SEC issued SAB Guidance 121, known as the Bulletin, in March 2022, which advises any entity protecting crypto assets on behalf of others to report them on its balance sheet as if it owned them. Opponents of the rule say it would limit options for U.S. crypto owners who prefer to keep these digital assets in traditional banks, which face additional regulatory pressures beyond the SEC disclosures.
Additionally, crypto proponents argue that this could pose a problem if the entity goes bankrupt because they are declaring ownership of the assets they are merely custodians of, which does not protect retail investors at all. Additionally, this does not apply to traditional assets like stocks. Critics have pointed out that the measure is intended to prevent regulated financial entities from providing custody services.
SEC: GAO Says It’s Time for Congress to Intervene
Additionally, a legal investigation by the Government Accountability Office [GAO] determined that the SEC guidance, called Staff Accounting Bulletin 121, functioned essentially as an agency rule that should be subject to Congressional scrutiny. SEC Enforcement strategy before formal regulations faced significant backlash from cryptocurrency supporters, who accused the regulator of overstepping its jurisdiction.
Citing this guidance, market observers are also skeptical about the adequacy of existing regulations to control crypto markets and the need for new custody rules. The discussion also focused on the SEC’s approach to promulgating different crypto custody rules for digital assets while simultaneously handing full custody of Bitcoin ETFs to Coinbase.
“It’s just a really strange situation and a good example of how the SEC has gotten a little bit knotted with its all-out push against crypto,” said Sean Tuffy, a banking regulation expert.