Biden backs Gensler as House advances resolution to power-check SEC

President Joe Biden has promised to back Securities and Exchange Commission Chairman Gary Gensler after a resolution to overturn an agency accounting practice advanced out of the House Wednesday evening.

The House on Wednesday approved joint resolution 109 — which would invalidate the SEC’s Staff Accounting Bulletin (SAB) 121 — in a 228-182 vote. The measure now moves on to the Senate, but Biden’s administration warned it would veto the resolution if it makes it to the president’s desk.

“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 Biden administration wrote in a statement Wednesday.

SAB 121, introduced in March 2022 and enacted the following month, states that digital asset custodians should report a liability and “corresponding assets” on their balance sheets for all custodied cryptocurrencies. The practice, SEC staff said, is intended to guard against the “significant risks and uncertainties associated with safeguarding crypto assets.”

Reps. Mike Flood, R-Neb., Nick Wiley, D-N.C., Tom Emmer, R-Minn., Darren Soto, D-Flo., and French Hill, R-Ark., introduced the joint resolution in the House in February.

“The SEC issued SAB 121 without conferring with prudential regulators despite the accounting standard’s effects on financial institutions’ treatment of custodial assets, and the SEC issued SAB 121 without going through the notice-and-comment process,” Rep. Flood said of the resolution in a statement earlier this year. “In the face of overreach by a regulator, it is the role of Congress to serve as a check.”

While SABs are not enforceable rules under securities law, they are used by staff for interpretations and practices, the SEC said. Unlike traditional rules issued by the agency, SABs do not require public notice or comment periods and do not reflect the official approval of Commissioners, a point Flood and his co-sponsors find troubling.

All voting House Republicans were in favor of passing the joint resolution Wednesday. 21 Democrats also supported the measure.

Senator Cynthia Lummis, R-Wyo., a long-time crypto supporter, introduced a companion joint resolution in the Senate, although she lacked bipartisan support. Lummis’ effort has not advanced to Committee markup or a vote, and now that the House’s resolution is making its way to the Senate, the measure is all but dead.

Gensler in December 2023 defended SAB 121, saying it was “just a staff accounting bulletin,” and it is consistent with precedent set in US bankruptcy court.

“It basically addresses whether liabilities should be on balance sheet, and what we have found actually in bankruptcy court, time and again, many times now, that indeed bankruptcy courts have said that crypto assets are not bankruptcy remote,” Gensler said during a Dec. 2023 appearance hosted by the American Bar Association.

Gensler, who has previously denied that he is working against the clock, could face significant headwinds in advancing his agenda after this year’s election. Should Republicans gain control of both chambers in November, additional efforts to overturn and undermine agency policy are likely to continue.

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