June 23, 2024

Senate Joins House in Bid to Overturn SEC’s Controversial Crypto Policy, Faces Biden’s Veto


In a significant legislative move, the U.S. Senate voted 60-38 on Thursday to overturn the Securities and Exchange Commission’s (SEC) controversial crypto policy known as Staff Accounting Bulletin No. 121 (SAB 121). This policy, which has drawn substantial ire from the crypto industry, requires companies holding customer cryptocurrencies to record them on their balance sheets, potentially imposing significant capital burdens on banks and financial institutions working with crypto assets.

Despite the Senate’s vote, President Joe Biden has vowed to veto the resolution, emphasizing the importance of protecting investors and safeguarding the broader financial system. “Allowing this rule to be removed would disrupt work to protect investors in crypto-asset markets and to safeguard the broader financial system,” Biden stated.

A dozen Democrats joined a majority of Republicans in supporting the resolution, which passed with well over the simple majority needed but fell short of the two-thirds majority required to override a presidential veto. Notably, Senate Majority Leader Chuck Schumer (D-N.Y.) and other key Democratic leaders opposed the SEC’s crypto policy, aligning with the Republican stance.

Sen. Cynthia Lummis (R-Wyo.), who spearheaded the resolution in the Senate, criticized the bulletin as “a disaster” that failed to protect consumers. “This is a win for financial innovation and a clear rebuke of the way the Biden administration and Chair Gary Gensler have treated crypto assets,” Lummis said in a statement. “This marks the first time both chambers of Congress have passed standalone crypto legislation.”

SAB 121, issued by the SEC in 2022, has been contentious for requiring firms safeguarding crypto assets for customers to include those assets on their balance sheets, which could significantly impact their capital requirements. Critics, including many Republican lawmakers, have argued that the SEC bypassed the necessary rulemaking process, an assertion supported by the Government Accountability Office (GAO), which found procedural errors in how the policy was implemented.

An SEC spokesperson defended SAB 121 as non-binding staff guidance aimed at enhancing transparency and investor protection. “Time and again, we have seen crypto firms fail and watched as their customers lined up at the bankruptcy court in hopes of getting what they thought was legally theirs,” the spokesperson said.

The Congressional Review Act, which allows Congress to overturn federal rules, was the mechanism used to challenge SAB 121. In the House, 21 Democrats joined the largely Republican effort, reflecting significant bipartisan disapproval of the SEC’s approach.

Rep. Mike Flood (R-Neb.), a key figure behind the resolution, hailed the vote as a “landmark result” and urged President Biden to reconsider his veto threat. “It is clear there is overwhelming opposition to SAB 121,” Flood said. “The President should sign my resolution to ensure the SEC reverses course and sets America on a path to growing our digital financial future.”

A successful repeal under the Congressional Review Act would prevent the SEC from reintroducing similar policies in the future, a prospect that concerns the White House. The administration argued that this could “inappropriately constrain the SEC’s ability to ensure appropriate guardrails and address future issues related to crypto-assets including financial stability.”

Rep. Wiley Nickel (D-N.C.), who co-sponsored the House resolution, criticized the SEC for sidestepping the statutory rulemaking process. “Today’s Senate vote to repeal SAB 121 sends a clear bipartisan message: Congress will not stand idly by as Gary Gensler and the SEC deliberately overstep their regulatory authority,” Nickel said.

This legislative push represents a pivotal moment for the crypto industry, marking one of the first major congressional actions aimed at aiding the sector, aside from a previous crypto taxation provision included in an infrastructure law. Whether the resolution will survive the President’s veto remains to be seen, but the move underscores the growing political and regulatory scrutiny surrounding cryptocurrency markets in the United States.

Digital Assets Desk

Print Friendly, PDF & Email