Accounting Bulletin 121 (SAB 121) issued by the U.S. Securities and Exchange Commission (SEC) requires companies, including banks, to treat crypto assets held by customers as liabilities on their balance sheets. This requirement has led to efficiency bottlenecks for large banks in providing cryptocurrency custody services.
To change this situation, the U.S. House of Representatives and Senate passed a bipartisan Congressional Review Act (CRA) resolution aimed at repealing the guidance of SAB 121. However, the Biden administration vetoed the resolution in May.
Although the president's veto posed an obstacle to the passage of the bill, according to American Banker, the House of Representatives held a vote on July 11 to try to override the veto. Unfortunately, the vote did not reach the two-thirds majority required to override the president's veto, with a final vote of 228 in favor and 184 against, failing to overturn the president's veto resolution.
SAB 121 threatens legislative security of digital assets
Patrick McHenry, the pro-cryptocurrency chairman of the House Financial Services Committee, expressed disappointment over President Biden's veto of the bipartisan Congressional Review Act (CRA) resolution. He stressed: "This is a mandate from the Americans we represent. Despite all the recent progress and bipartisan agreement, President Biden vetoed the first legislation ever passed by the House and Senate targeting digital assets."
Major financial organizations including the American Bankers Association, the Bank Policy Institute, the Financial Services Forum and the Securities Industry and Financial Markets Association jointly sent a letter to the House of Representatives this week, expressing their concerns about SAB 121: "SAB 121 is a significant departure from the long-standing accounting treatment of custodial assets and threatens the industry's ability to provide customers with safe and robust custody of digital assets."
However, amid this challenge, the U.S. Securities and Exchange Commission (SEC) has provided a glimmer of hope for banks and brokerage firms. According to a July 11 report by Bloomberg, the SEC now offers a way for these institutions to avoid reporting customers’ cryptocurrency holdings on their balance sheets, a departure from the previous strict enforcement of SAB 121. Bloomberg’s Amanda Iacone explained that banks and financial institutions can get around this controversial accounting rule if they can take steps to offset the risks associated with crypto assets, such as ensuring that customer assets are protected in the event of bankruptcy or failure.
This policy change provides greater flexibility for cryptocurrency custody services and may help promote more banks and companies to enter this field, thereby providing more options for U.S. cryptocurrency holders. Although the House of Representatives' attempt to overturn President Biden's veto failed, the SEC's change of attitude may open up new paths for the development of cryptocurrency custody services.
SEC relaxes stance, SAB 121 regulation remains
The U.S. Securities and Exchange Commission (SEC) has recently shown a more flexible attitude towards banks and financial institutions, especially in dealing with cryptocurrency custody issues. Since 2023, some large banks have negotiated with the SEC and obtained approval to bypass balance sheet reporting under certain conditions. The SEC believes that its previous guidance has achieved its purpose, which is to encourage companies to face and address the security and legal risks associated with cryptocurrency holdings.
The SEC’s new stance provides banks and companies with more flexibility to provide cryptocurrency custody services, thereby providing a wider range of options for cryptocurrency holders in the United States. This marks a positive development in regulators’ adaptation to emerging financial technologies.
However, despite the SEC's softening stance, the House of Representatives failed to obtain the necessary two-thirds majority in its attempt to overturn President Biden's veto of the Congressional Review Act (CRA) resolution this week. As a result, Accounting Bulletin 121 (SAB 121) remains in effect, continuing to require companies to record customer-held crypto assets as liabilities on their balance sheets. This also means that despite some flexibility provided by the SEC, banks and financial institutions still face accounting and regulatory challenges when providing cryptocurrency custody services.
Conclusion:
Although the SEC has shown a proactive attitude towards adapting to emerging financial technologies, the continued validity of Accounting Bulletin 121 (SAB 121) and the failure of the House of Representatives to overturn President Biden’s veto of the CRA resolution mean that banks and financial institutions still face accounting and regulatory challenges when providing cryptocurrency custody services.
As financial technology and the regulatory environment continue to evolve, market participants need to continue to pay attention to policy changes to ensure that they fully grasp new opportunities in the investment market while complying with regulations. #拜登政府 #加密货币 #托管服务 #监管政策