According to The Block, some companies and financial organizations have submitted proposals to the SEC regarding their business operations, which the agency has approved, allowing them to bypass crypto custody regulations – SAB 121.
SEC allows certain firms to skirt controversial crypto accounting bulletin https://t.co/H9iQXJaIqW
— The Block (@TheBlock__) July 12, 2024
Specifically, these companies have demonstrated that establishing procedures and the ability to recover customers’ cryptocurrency assets allows them to reclaim equivalent assets like USD in case of bankruptcy. Therefore, they are exempt from the accounting guidelines of SAB 121.
SEC-approved companies have made significant changes to safeguard crypto assets and assert control, including establishing accounting policies and asset protection procedures and defining access rights to these assets. An SEC spokesperson stated:
“Any company that demonstrates the ability to meet SAB requirements while establishing necessary procedures and meeting other factors will receive SEC approval to custody crypto on behalf of clients.”
SAB 121 regulations were introduced by the SEC in 2022 following the collapse of significant crypto firms such as Terraform Labs, Celsius, and FTX, raising questions about protecting clients’ cryptocurrency assets in bankruptcy cases.
This policy prohibits banks from engaging in custodial services for client crypto assets and requires other financial companies holding users’ crypto to record them as liabilities on their balance sheets.
The SAB 121 policy indirectly prevents financial institutions from interacting with crypto unless they are willing to invest significant capital to ensure their financial books are balanced.
This has sparked controversy in US politics. In May 2024, the US House of Representatives voted on H.J.Res. 109 to reverse SEC’s custody regulations, with 228 in favor and 182 against, indicating the House’s intention to repeal these rules. A week later, the Senate also voted to overturn SAB 121.
However, on May 31, President Joe Biden officially vetoed this legislation, citing concerns that repealing SAB 121 could undermine the SEC’s authority in maintaining comprehensive financial legal frameworks for cryptocurrency, eliciting strong reactions.
Most recently, on July 11, the US Congress voted again to reject President Biden’s veto, receiving 228 in favor and 184 against, failing to achieve the two-thirds majority needed from both chambers to overturn the veto.
Today’s vote in the House to override the President’s veto of the SAB 121 CRA demonstrated bipartisan support, but ultimately fell short of the required 2/3 majority.
The following statement is attributed to @BlockchainAssn CEO @KMSmithDC: pic.twitter.com/NSPOni57Sd
— Blockchain Association (@BlockchainAssn) July 11, 2024
Congressman Patrick McHenry, RN.C, expressed frustration:
“This administration is playing political games and supporting power-hungry officials rather than caring about Americans’ safe use in this nascent industry.”
After learning that some companies were exempted from SAB 121 regulations, the crypto community has also stirred. Custodia Bank founder Caitlin Long believes this move shows favoritism and corruption, favoring only large banks and companies. The term “USSA” is used to imply that the US is becoming a socialist country where the government and large organizations control everything.
C O R R U P T I O N ! ! ! ????
Rules for thee but not for me.
Big banks get a pass.
Welcome to the USSA 2024 ???? https://t.co/mcPILwrm2u
— Caitlin Long ????⚡️???? (@CaitlinLong_) July 12, 2024
Galaxy Research’s chief research officer also expressed confusion over the more complex and controversial FIT21 bill, which received strong support from Democratic Party members. At the same time, opposition to repealing policies like SAB 121 did not garner enough votes.
SAB 121 veto override vote failed to reach 2/3 in the House 228-184 (needed 290 to pass)
i continue to be surprised that FIT21 saw 71 dems vote in favor when overturning SAB 121 is far less controversial than FIT21. why support FIT21 and not undoing SAB 121? interesting politics pic.twitter.com/Zuaz5thRIP
— Alex Thorn (@intangiblecoins) July 11, 2024
The SEC’s move to exempt companies from SAB 121 regulations appears to appease large financial and crypto entities. However, it highlights the complexity of legislative processes amidst current political turmoil, where the Democratic presidential candidate crisis likely influenced Biden’s veto decision.
