House Committee Advances Bill to Repeal SEC Crypto Accounting Guidance

News | March 12, 2024 By:

On Thursday, February 29, 2024, the House Financial Services Committee advanced a bipartisan bill that would undo accounting guidance for cryptocurrencies issued by the U.S. Securities and Exchange Commission (SEC). The bill aims to repeal SEC Staff Accounting Bulletin 121, which directed banks to record digital assets held in custody on their balance sheets.

The committee voted 31-20 to pass the bill out of committee. Introduced by Rep. Mike Flood (R-NE) and Rep. Wiley Nickel (D-NC), the bill would repeal SAB 121 using the Congressional Review Act. Flood argued that requiring banks to include custody assets on their books would significantly increase regulatory obligations like capital requirements. This could disincentivize banks from providing crypto custody services.

Republicans said the effects of SAB 121 are evident in newly approved bitcoin exchange-traded funds, which do not use established banks as custody providers due to the accounting guidance. However, Democrats expressed concerns over limiting the SEC’s authority to issue such guidance.

SEC reiterated that SAB 121 is non-binding and improves disclosure for investors regarding risks at crypto firms providing custody services. The agency has seen failures where customers did not recover crypto assets thought to be legally theirs. SEC warned repealing the guidance could hide risks from balance sheets.

Rep. Maxine Waters (D-CA) urged a no vote, arguing SAB 121 is not a binding rule. She warned using the CRA could have a “chilling effect” on future SEC accounting guidance. Repeal would prohibit the SEC from issuing similar guidance, potentially deterring the agency from offering any non-binding advice. Other Democrats echoed these concerns over weakening the SEC’s authority.

The bill will now head to the House floor for a full vote. A parallel Senate bill introduced by Sen. Cynthia Lummis (R-WY) awaits action. Debate continues over balancing guidance and regulation in the rapidly evolving cryptocurrency industry.