The Senate has rejected, in bipartisan fashion, an SEC rule that curbed an institution’s ability to own crypto assets, opening the opportunity for more retail investors to hold digital assets in their bank accounts.
The vote overturned the SEC’s Staff Accounting Bulletin 121. This accounting rule required banks maintaining custody of crypto to include those digital assets on their own balance sheets.
“That would make it difficult for banks to provide that service for lots of reasons,” said James Wester, Director of Cryptocurrency at Javelin Strategy & Research. “It has caused banks to say, ‘We don’t want to do that.’”
But the Senate voted this week, 60-38, to overturn the policy. Twelve Democrats, including Senate Majority Leader Chuck Schumer (D-N.Y.), joined the Republican conference in opposing the rule.
President Biden has said he will veto the legislation. “Limiting the SEC’s ability to maintain a comprehensive and effective financial regulatory framework for crypto-assets would introduce substantial financial instability and market uncertainty,” the White House said in a statement.
A Stealth Rule
Issued without discussion by the agency, SAB 121 mandated that a company holding a customer’s cryptocurrencies should record them on its own balance sheet—which could have major capital implications for banks working with crypto clients. As the name indicates, the ruling originated in a staff bulletin intended to provide guidance for existing accounting rules.
Republican lawmakers claimed the SEC had implemented policy without following the necessary rule process. “SAB 21 is a rule under the administrative procedure act, disguised as an accounting guidance,” said Sen. Cynthia Lummis (R-Wyo.) in a statement. “It was published by the SEC staff without the approval of the majority of the commission.”
The Government Accountability Office agreed, saying that the SEC should have addressed the issue as a formal rule rather than through staff guidance.
An Issue for ETFs
The issue gained greater salience after the introduction of the bitcoin Exchange Traded Funds earlier this year. Since the rule deters banks from holding bitcoin, most of those assets are currently held by a few institutions. Overturning the rule would allow more banks and organizations to hold their own bitcoin. And according to Lummis, the safest place for digital assets is in a self-hosted wallet.
“Even though the White House has said it will veto this bill, the bipartisan support for the bill in both the House and the Senate shows there may be some hope for real legislation dealing with digital assets and crypto,” said Wester. “It is a sign that crypto isn’t necessarily a partisan issue.”
