House passes resolution to invalidate SEC’s guidance on crypto banking (SAB 121)

The United States House of Representatives has successfully passed a bill that overturns the contentious Securities and Exchange Commission (SEC) guidance that prohibited banks from owning cryptocurrency. However, President Joe Biden has issued a warning, stating that he would veto the bill if it reaches his desk. On May 8, the House voted in favor of the bipartisan bill, known as H.J. Res 109, which nullifies the SEC’s Special Accounting Bulletin 121 (SAB 121) that mandated banks to include customers’ cryptocurrency assets on their balance sheets, unlike traditional assets such as securities. Republican Party Representative Mike Flood, who introduced the resolution, argued that SAB 121 was unfair to banks interested in providing custody services for cryptocurrency, as custodial assets are typically considered off-balance sheet. Notably, 21 Democratic Party members voted in favor of the bill, and when combined with the 207 votes from Republicans, the bill passed with a vote of 228 to 182. Despite its success in the House, President Biden has expressed his intention to veto the bill. The White House released a statement on May 8, expressing strong opposition to the efforts of House members to overturn SAB 121, claiming that it would disrupt the SEC’s mission to protect investors in the crypto-asset markets and safeguard the broader financial system. SAB 121, introduced by the SEC in March 2022, outlines accounting guidelines for institutions interested in providing custody services for cryptocurrency assets. However, the guidance effectively prevents banks from acting as custodians for crypto assets on behalf of their clients. U.S. lawmakers and SEC Commissioner Hester Peirce have criticized SAB 121, arguing that it discourages regulated banks from serving as custodians for cryptocurrency and treats crypto holdings differently from other assets. The House Financial Services Committee (HFSC) stated on May 8 that by overturning SAB 121, the bipartisan resolution ensures consumer protection by removing obstacles that prevent highly regulated financial institutions and firms from acting as custodians of digital assets. HFSC Chairman Representative Patrick McHenry criticized SAB 121 as an example of regulatory overreach during Gary Gensler’s time as SEC Chairman. This is an ongoing story, and additional information will be provided as it becomes available.