Earlier this year, both the House and Senate voted to overturn the SEC’s SAB 121 accounting rule that prevented banks from providing crypto custody solutions. However, President Biden used his veto so the rule still stands. Mike Flood, the Congressman that led the bipartisan House vote, has vowed to work with a new SEC Chair to ditch SAB 121 for good.
However, Flood’s work wasn’t entirely wasted. The dual votes highlighted the issue that forcing banks to put assets under custody on their balance sheet is both unconventional and affects their compliance with bank balance sheet rules. As a result, it makes it prohibitively expensive for banks to provide crypto custody and inhibits innovation on the tokenization front.
Since then, the SEC has softened its stance a little. Banks can apply for exceptions and it has granted them. That’s not a practical solution, because banks have to consult the SEC on most deals.
“SAB 121, despite widespread opposition, works effectively as a regulation even though it never went through the normal Administrative Procedures Act process required for one,” Congressman Flood wrote.
“I look forward to working with the next SEC Chair to rollback SAB 121.” He didn’t pull his punches about SEC Chair Gensler. “Whether the chair leaves on his own or President Trump delivers his famous line on January 20, 2025, there’s an incredible opportunity for the new administration to turn the page on the Gensler era.”
“It should be no surprise that Gensler opposed the digital assets regulatory framework that passed the House earlier this year on a bipartisan basis. 71 Democrats joined House Republicans to pass this common sense framework. Even though the Democrat-led Senate has refused to take it up, it represents a breakthrough moment for cryptocurrency and is likely to inform the work of the unified Republican government as the next Congress begins in January.”
