House Votes Thumbs Down on SEC Crypto Accounting Bulletin
Commentary by Steven Lofchie
The U.S. House of Representatives ("House") passed a resolution to "disapprove" SEC Staff Accounting Bulletin ("SAB") No. 121, which prevents banks from providing custodial services to "digital assets [investors by requiring them to keep] those assets on their balance sheet."
In a bipartisan vote, the House approved a resolution to overturn the SEC bulletin under the Congressional Review Act. The SEC issued SAB 121 to require custodians of digital assets to report those assets on their balance sheets, thereby raising capital requirements and making it, as a practical matter, impossible for banks to offer such custodial services for digital assets as it would blow up their balance sheets.
In a statement, the White House confirmed that the President would veto the bill if it passed the Senate. The White House said, "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."
Commentary
If it were the case that it is impossible to safely custody cryptocurrencies, the United States would not be developing the technology to launch a CBDC. Here, for example, is a news story with a link to a CRS policy paper on a potential U.S. dollar CBDC: CRS Identifies Policy Considerations on CBDC Issuance. One may notice a policy issue that is nowhere mentioned: the impossibility of safely custodying cryptocurrencies.
There is a reason that policy issue is not mentioned: it's not a real issue.
As far as the money that has been lost through fraudulent custodial schemes, the regulators could have prevented that if they would have allowed well-regulated institutions to provide custody.
If the U.S. government is committed to the belief that cryptocurrencies are fundamentally destructive, the government should propose a law to that end and fight for its passage. Instead of doing so, the U.S. government erects barriers that make it more dangerous for retail persons to hold the assets safely. It is disappointing that the SEC, an agency whose raison d'être is honest disclosure, facilitates those barriers.
(One might imagine a new James Bond movie - Bitcoinfinger - where the bad guy blows up a bomb at the bank custodying the digital assets. But it wouldn't damage the assets because they are all digital and there is a back-up server.)
Related Articles
-
SIFMA supported a Congressional joint resolution sponsored by Senator Cynthia Lummis (R-WY) and Representatives Mike Flood (R-NE) and Wiley Nickel (D-NC) to disapprove SEC Staff Accounting Bulletin No. 121, which prevents banks from providing custodial services to digital assets investors by requiring them to keep those assets on-balance sheet.
-
House Financial Services Committee Chair Patrick McHenry (R-NC) and a bipartisan group of legislators asked banking regulators to clarify "through guidance and other actions" that an SEC Staff Accounting Bulletin, which describes how a custodian must account for digital assets, is not enforceable.
-
House Financial Services Committee members Mike Flood (R-NE), Ritchie Torres (D-NY), French Hill (R-AR) and Wiley Nickel (D-NC) introduced the Uniform Treatment of Custodial Assets Act. The proposed legislation would prohibit financial institutions from including crypto assets held in their custody as a liability on their balance sheet.
-
In a letter to the Federal Reserve, the FDIC, the OCC and the NCUA, Senator Cynthia M. Lummis (R-WY) and Representative Patrick McHenry (R-NC) criticized SEC guidance on the accounting treatment of cryptocurrency assets by custodians.