A
little-known
rule
proposed
by
the
U.S.
Securities
and
Exchange
Commission
(SEC)
that
is
disliked
by
vast
numbers
of
the
finance
firms
—
particularly
banks
—
and
vehemently
opposed
by
the
majority
of
the
crypto
industry
is
essentially
getting
revived
by
President
Joseph
Biden.
This
is
an
excerpt
from
The
Node
newsletter,
a
daily
roundup
of
the
most
pivotal
crypto
news
on
CoinDesk
and
beyond.
You
can
subscribe
to
get
the
full
newsletter
here.
The
House
on
Wednesday
approved
a
decision
to
overturn
the
SEC’s
Staff
Accounting
Bulletin
(SAB)
121
in
a
majority
vote.
In
the
normal
course
of
events,
the
measure
would
then
move
to
the
Senate,
but,
in
an
unexpected
twist,
Biden
has
warned
he
will
veto
the
bill.
“This
move
makes
such
little
sense
that
it’s
highly
likely
the
White
House
doesn’t
even
understand
the
issues
at
stake,
and
is
just
going
along
with
a
certain
limited
and
unreasonably
biased
yet
influential
faction,”
Noelle
Acheson,
author
of
the
“Crypto
is
Macro
Now”
market
research
newsletter,
said
on
X.
“Just
who
is
the
government
serving
here?
Who
is
it
protecting?”
Acheson’s
incredulity
is
perhaps
justifiable.
Critics
have
called
SAB
121
“obscure,”
a
“diktat”
and
a
“pernicious
weed.”
Since
2022,
when
the
bulletin
was
posted,
digital
asset
custodians
have
had
to
treat
the
assets
they’re
holding
on
behalf
of
clients
as
a
liability
on
their
own
balance
sheets
and
hold
additional
capital
to
offset
those
liabilities.
Crypto
advocates
see
the
rule
as
onerous
and
capital
intensive,
and,
interestingly,
so
do
banks
and
other
financial
incumbents.
In
February,
major
banking
and
securities
industry
bodies
including
the
Bank
Policy
Institute
(BPI),
American
Bankers
Association
(ABA),
Financial
Services
Forum
(FSF)
and
the
Securities
Industry
and
Financial
Markets
Association
(SIFMA)
wrote
a
letter
to
the
SEC
asking
for
amendments
to
the
bulletin’s
requirements.
“SAB
121
will
have
a
chilling
effect
on
banking
organizations’
ability
to
develop
responsible
use
cases
for
distributed
ledger
technology
(DLT)
more
broadly,”
the
letter
states.
Custody
is
already
a
fairly
low-margin
business,
and
asking
institutions
to
hold
a
dollar
for
every
asset
in
custody,
as
an
extra
insurance
on
top
of,
just
being
able
to
keep
the
assets
safe
is
a
bit
much.
But
it’s
not
only
industry
participants
that
are
complaining.
In
2022,
the
U.S.
Government
Accountability
Office
(GAO)
investigated
SAB
121
and
found
that
the
measure
warranted
a
congressional
review
because
they
skipped
over
the
necessary
public
review
and
comment
periods.
In
other
words,
the
SEC
tried
to
pass
off
a
rule
as
a
lowly
memo.
This
argument
was
then
picked
up
by
Sen.
Cynthia
Lummis
(R-Wyo.)
and
Reps.
Wiley
Nickel
(D-N.C.)
and
Mike
Flood
(R-Neb.),
who
posted
matching
resolutions
to
revoke
the
rule.
“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
at
the
time.
“In
the
face
of
overreach
by
a
regulator,
it
is
the
role
of
Congress
to
serve
as
a
check.”
House
Financial
Services
Committee
Chair
Patrick
McHenry
(R-N.C.)
also
picked
up
the
baton
to
criticize
an
overzealous
SEC,
saying
“because
they
called
it
staff
guidance,
the
SEC
could
avoid
public
comment
and
the
rulemaking
process
governed
by
the
Administrative
Procedure
Act
or
APA.”
It
was
Flood
and
Nickel’s
bill
that
Biden
threatened
to
veto,
in
what
is
being
seen
as
a
promise
to
back
SEC
Chairman
Gary
Gensler.
“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
Wednesday
statement.
SABs
are
not
enforceable
securities
law,
but
instead
guidance
for
both
industry
participants
and
the
SEC
itself
when
making
legal
interpretations
–
though
they
do
not
reflect
consensus
among
the
SEC’s
five
commissioners.
They
also
generally
do
not
go
through
a
review
process,
which
was
the
problem
at
hand.
Speaking
at
a
two-day
“SEC
Speaks”
event
last
month,
Commissioner
Hester
Peirce
commented::
“Nobody
can
challenge
the
diktats
because
they’re
not
final
agency
action,
but
compliance
is
mandatory
for
anyone
who
is
trying
to
avoid
SEC
delays,
denials
and
enforcement
and
examination
scrutiny.
So
everybody
silently
complies,”
Peirce
said.
“The
bottom
line
is
that
rules
of
such
broad
effect
should
be
set
by
the
full
commission,
not
by
the
staff
that
reports
only
to
the
chairman.”
In
a
better
world,
that
may
be
true.
But
this
time
it
seems
like
Biden
may
get
the
final
word.
