House of Representatives Votes to Overturn SEC Cryptocurrency Accounting Guidance

News | May 23, 2024 By:

On Wednesday, May 8, 2024, lawmakers in the U.S. House of Representatives voted 228-182 to overturn a controversial guidance issued by the U.S. Securities and Exchange Commission (SEC) relating to cryptocurrency accounting. House Joint Resolution 109, known as H.J. 109, aims to undo the SEC’s Staff Accounting Bulletin 121 (SAB 121), which directs banks to account for digital assets like bitcoin held under custody on their balance sheets.

Proponents of H.J. 109, mostly Republicans, argue that SAB 121 circumvented proper regulatory processes and oversight from banking regulators. They claim the guidance would discourage banks from serving cryptocurrency customers by increasing capital and liquidity requirements if customer assets have to be reported as liabilities. Without large banks providing custody services, companies working with cryptocurrencies and blockchain tech would struggle to operate.

However, the Biden administration strongly opposes overturning SAB 121. In a statement, the White House Office of Management and Budget said H.J. 109 could “inappropriately constrain the SEC’s ability to ensure appropriate guardrails” for cryptocurrencies and financial stability. The White House also pledged to veto the bill if it reaches President Biden’s desk.

Democrats in the House share these concerns. Rep. Maxine Waters of California warned that using the Congressional Review Act, which allows Congress to nullify agency rules, sets a “dangerous precedent” that could tie the SEC’s hands as the crypto industry continues to evolve. She argued Republicans should pursue a narrower amendment instead of scrapping the entire guidance.

The bill now moves to the Senate, where its future is uncertain. The SEC maintains that SAB 121 only provides non-binding disclosure recommendations to promote transparency for investors. With “time and again” cryptocurrency companies collapsing, the SEC says the guidance helps prevent assets held in custody from disappearing if a company declares bankruptcy.

While stakeholders have expressed valid worries about SAB 121’s potential effects, overriding it with H.J. 109 takes an extreme approach, according to critics. As the crypto industry works to comply with securities laws and obtain regulatory clarity, this debate over the SEC’s role in cryptocurrency oversight will likely continue.