U.S. legislators have voiced their disapproval of a policy adopted by the national securities regulator which they consider puts crypto investors at increased risk.
The directives were derived from the Securities and Exchange Commission, coming into effect in April last year.
The rules state that financial institutions looking after cryptocurrency assets on behalf of clients should mark them as liabilities, and must provide safeguards for the digital assets.
On March 2, Senators Cynthia Lummis and Patrick McHenry criticized the regulations, saying they are likely to discourage regulated entities from providing custodial services for digital assets, which is the opposite of what the regulator should be doing.
In a letter to the Federal Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the National Credit Union Administration, the lawmakers pointed out that Staff Accounting Bulletin (SAB)121 was meant to clear up the accounting treatment of virtual assets, yet it had unintended consequences. They wrote:
“SAB 121 places customer assets at greater risk of loss if a custodian becomes insolvent,”
Lummis and McHenry argued that the guidelines should be withdrawn and the SEC should look into the issue more deeply, taking into account feedback from industry professionals.
Lawmakers are expressing dissatisfaction with the Securities and Exchange Commission’s recent accounting bulletin, arguing that it fails to provide adequate protection for crypto customers.
In a letter to the SEC, Senators Lummis and other Republicans criticized the “regulation disguised as staff guidance”. They noted that the bulletin fails to comply with the Administrative Procedure Act and that it denies Americans access to secure custodial arrangements for digital assets.
SEC Commissioner Hester Peirce also expressed similar concerns shortly after the bulletin was released, claiming that the change was “yet another manifestation of the SEC’s scattershot and inefficient approach to crypto”. She further noted that the breadth of the digital asset definition contained in the bulletin fails to consider the different opportunities and risks associated with each asset class.
The legislators argued for a more nuanced hierarchy for this asset class, stating that this would help to protect customers in the event that their broker fails or enters receivership, thus fulfilling the SEC’s mission of protecting the public.