Bipartisan Congressional group tries to repeal controversial SEC crypto custody policy

A group of bipartisan congressional leaders have partnered on an effort to overturn the Securities and Exchange Commission’s latest accounting standards for crypto custodians.

Sen. Cynthia Lummis, R-Wyo., and Reps. Mike Flood, R-Neb., and Wiley Nickel, D-N.C., issued a joint resolution Thursday afternoon to repeal the SEC’s Staff Accounting Bill (SAB) 121.

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

Earlier this year, the Government Accountability Office (GAO) found that the SEC had failed to follow the Congressional Review Act (CRA) when it issued SAB 121. The SEC later countered that SABs are not subject to follow CRA since they are not official rules.

Commissioner Hester Peirce, a known friend to the crypto-industry, criticized the bulletin, arguing that issuing guidance via SABs is insufficient.

“If we are trying to encourage companies to enter our public markets, we ought to embrace a more deliberate approach to changing rules — one that involves consulting with affected parties,” Peirce wrote in March 2022.

Under securities law, SABs are not rules and do not reflect official approval from all Commissioners, but they are used by the staff for interpretations and practices, according to the agency. Unlike traditional rules issued by the agency, SABs do not require public notice or comment periods.

SEC Chair Gary 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.

Joint resolutions, similar to bills, must be introduced and pass both Chambers to become law.

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