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House Challenges SEC Crypto Policy, Faces Presidential Veto Threat

SEC’s crypto accounting policy controversy

The U.S. House of Representatives has voted to reject the SEC's crypto policy, SAB 121, amidst presidential promises of a veto, highlighting intense debates over cryptocurrency regulation and government oversight.

Key takeaways:

  • The House voted to oppose the SEC’s crypto accounting guidance, SAB 121, indicating significant legislative pushback against perceived regulatory overreach.
  • President Biden has promised to veto the resolution, emphasizing the importance of maintaining comprehensive SEC oversight over the crypto market to prevent financial instability.
  • The use of the Congressional Review Act to reverse the SEC’s guidance raises concerns about potentially limiting the SEC’s ability to regulate crypto assets effectively in the future.

The U.S. House of Representatives has taken a decisive step against the Securities and Exchange Commission's (SEC) cryptocurrency accounting guidelines, known as Staff Accounting Bulletin No. 121 (SAB 121), which has been heavily criticized by the digital asset industry and some lawmakers. 

The House's approval of a resolution to reject this guidance marks a significant pushback against what is perceived as overly burdensome regulatory overreach. However, President Joe Biden has expressed his intention to veto the resolution, underscoring a significant clash between legislative and executive perspectives on cryptocurrency regulation.

Detailed analysis of the legislative and executive responses

The SEC issued SAB 121 with the intention of clarifying accounting treatments for cryptocurrencies, particularly emphasizing that banks holding customers’ digital tokens should reflect this on their balance sheets—a directive that could lead to considerable capital expenditures for these institutions. This guidance has been met with fierce opposition, not only from the crypto sector but also from within the government, as evidenced by a critical review from the Government Accountability Office (GAO) which argued that the SEC should have treated the guidance as a rule, thereby requiring a more formal rulemaking process including public comment.

Political and regulatory dynamics: 

Representative Mike Flood (R-Neb.), the sponsor of the House effort, criticized SEC Chair Gary Gensler’s approach, accusing him of using the guidance to inappropriately influence banking operations without proper consultation with banking regulators. On the floor of the House, Representative Patrick McHenry (R-N.C.) described SAB 121 as a deviation from standard regulatory procedures for banks, receiving backing from both Republicans and some Democrats.

President Biden, along with other Democrats like Representative Maxine Waters (D-Calif.), defended the SEC’s actions. They argued that the resolution to overturn SAB 121 is too extreme and could undermine necessary regulatory oversight of the crypto industry. Biden’s statement highlighted the risks of limiting the SEC’s regulatory powers, suggesting that it could lead to increased financial instability and market uncertainty.

Implications of Congressional Review Act: 

The debate also touches on the implications of using the Congressional Review Act to reverse the SEC’s guidance. This act not only allows Congress to overturn agency rules but also prevents the agency from enacting similar rules in the future. This aspect of the law brings additional weight to the resolution, as it could significantly constrain the SEC’s future regulatory capabilities concerning crypto assets.

Outcomes and broader impact

The resolution’s passage in the House and the potential presidential veto highlight the ongoing struggle between different branches of government over how to regulate the cryptocurrency market. This conflict underscores broader debates about the balance between innovation and regulation, the proper roles of various regulatory bodies, and the legislative process itself.

While the Senate has yet to act on a matching resolution, the outcome of this legislative effort could have profound implications for the regulatory landscape of cryptocurrencies in the United States. Stakeholders from the crypto industry, regulatory bodies, and legislative branches continue to watch these developments closely, as the final decisions could impact a wide range of issues from market stability to innovation in the fintech sector.