Will Biden Get the Final Say Over a Controversial Crypto Accounting Rule?

A little-known rule proposed by the U.S. Securities and Exchange Commission (SEC), disliked by many financial firms, especially banks, and strongly opposed by much of the crypto industry, is being revived by President Joseph Biden.

This is an excerpt from The Node newsletter, a daily digest of the most important crypto news from CoinDesk and beyond. You can subscribe to access the entire newsletter here.

The House on Wednesday approved the SEC’s decision to overturn Personnel Accounting Bulletin (SAB) 121 by a majority vote. In the normal course of events, the measure would then move to the Senate, but in an unexpected twist, Biden warned that he would veto the bill.

“This move makes so little sense that it is quite possible that the White House does not understand the issues at stake and is merely acting in concert with a limited and irrationally biased but influential group,” said Noelle Acheson, author of “Crypto is.” Macro Now” market research newsletter X said: “Who does the government serve here? Who is he protecting?

Acheson’s skepticism is perhaps justified. Critics called SAB 121 “vague,” “dictatorial,” and a “noxious weed.” Since 2022, when the bulletin was published, digital asset custodians have had to treat the assets they hold on behalf of their customers as liabilities on their own balance sheets and hold additional capital to offset these liabilities.

Crypto advocates see this rule as burdensome and capital-intensive; Interestingly, banks and other financial officials do the same. In February, leading banking and securities industry organizations, including the Bank Policy Institute (BPI), the American Bankers Association (ABA), the Financial Services Forum (FSF), and the Securities Industry and Financial Markets Association (SIFMA), wrote a letter to the SEC. Wrote. Changes made to the newsletter terms.

“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 very low-margin business, and asking institutions to keep a dollar for every asset in escrow as additional insurance to keep assets safe is a bit much.

But industry participants aren’t the only ones complaining. In 2022, the U.S. Government Accountability Office (GAO) investigated SAB 121 and found that the measure required congressional review because it bypassed required public review and comment periods. In other words, the SEC attempted to convey a rule as a low rating.

The story continues

This argument was later adopted by Sen. Cynthia Lummis (R-Wyo.) and Reps. Wiley Nickel (D-N.C.) and Mike Flood (R-Neb.), who issued matching resolutions to repeal the rule.

“The SEC issued SAB 121 without consulting with prudential regulators despite the accounting standard’s impact on financial institutions’ treatment of depository assets, and the SEC issued SAB 121 without going through the notice and comment process,” Representative Flood said at the time. . “In the face of excessive intervention by a regulator, Congress’s duty is to act as a check.”

House Financial Services Committee Chairman Patrick McHenry, R.N.C., also took up the baton to criticize the overzealous SEC, saying: “The SEC, for what they call staff guidance, is subject to public comments and the Administrative Procedure Act, or the Administrative Procedure Act.” could have avoided the managed rulemaking process.” It is APA.”

What Biden threatened to veto was Flood and Nickel’s bill, seen as a pledge to support SEC Chairman Gary Gensler. “Limiting the SEC’s ability to maintain a comprehensive and effective financial regulatory framework for crypto assets would lead to significant financial instability and market uncertainty,” the Biden administration wrote in a statement Wednesday.

See also: House Votes to Delete SEC Crypto Policy as President Biden Vows Veto

SABs are not applicable securities laws; instead, it provides guidance for both industry participants and the SEC itself in making legal interpretations; but they do not reflect the consensus among the SEC’s five commissioners. They also generally don’t go through a review process, which was the current problem.

Speaking at the two-day “SEC Speaks” event last month, Commissioner Hester Peirce commented:

“No one can challenge the orders because they are not the agency’s final action, but compliance is mandatory for anyone trying to avoid the SEC’s delays, denials, enforcement and due diligence scrutiny. So everyone is quietly sleeping,” Peirce said.

“The bottom line is that rules with such broad impact should be determined by the entire commission, not just by staff reporting to the president.”

In a better world, this might be true. However, this time it looks like Biden will have the final say.

See also: ‘Boden’ Memecoin Soars After Trump’s Jokes on Topic