WASHINGTON — Representatives from the Republican party in Congress are pushing back against the Securities and Exchange Commission’s (SEC) Bulletin that would change how banks and financial institutions handle digital assets.
Patrick McHenry, the Chair of the House Financial Services Committee, and Senator Cynthia Lummis, R-Wyo, are working together to make a regulation for cryptocurrencies. On Thursday, they expressed their “concerns” about the SEC’s Staff Accounting Bulletin SAB 121 in a letter.
An issue is the way crypto networks compute their risks. Usually, these platforms don’t include the customers’ digital resources when calculating the potential dangers their firms are exposed to. SAB 121 orders them to consider these assets in their assessment.
SEC and legislators are still trying to determine how to govern digital assets, which has become more pressing in the wake of the collapse of several prominent crypto platforms including Celsius and FTX. Several customers had their assets frozen or lost money as a result of the companies’ bankruptcies.
“A recent ruling in the Celsius bankruptcy case, which categorized all Celsius’ clients as unsecured creditors, making them the last to receive their assets, highlights the legal danger of requiring customer assets to be put on the balance sheet,” McHenry and Lummis said in their letter.
In January, the Biden Administration asked Congress to “broaden the authorities of regulators to stop misuse of customers’ funds which hurts investors and influences prices, and to reduce possible conflicts of interest.”
The SEC is the most likely government body to oversee digital assets. However, it is still concerned about the status of cryptocurrencies, whether they should be considered securities or not. Gary Gensler, the Chair of the SEC, believes some digital assets fit the definition of securities, but also warned that the market is “largely unregulated” and it poses a “significant risk” for investors.
The Securities and Exchange Commission (SEC) has made a move to reign in cryptocurrency platforms, but Congressional Republicans are not pleased. The SEC regulations could have a significant impact on both customers and the companies that have rapidly grown in the crypto sector over the last few years. As a result, lobbying has been a key tactic used by the industry.
SAB 121 was issued last March by the SEC’s Office of the Chief Accountant. This was the first time that digital asset platforms were given instructions on how to record the fluctuating values of cryptocurrencies. These Bulletins from SEC are rare, with only three issued since 2019. They are statements made by staff to express their views on how businesses should handle certain accounting matters. In August, Gary Gensler defended SAB 121 as a normal part of the SEC’s operations.
McHenry and Lummis are worried that it could lead to increased consumer risk and higher compliance costs for financial institutions. After the Bulletin was released, the SEC faced opposition from both banks and crypto companies.
“Since SAB 121 supposedly calls for banks, credit unions, and other financial institutions to essentially record digital assets on their balance sheets, it would trigger a huge capital charge,” They wrote. “This in turn is likely to prevent these prudentially regulated entities from engaging in digital asset custody.”
In January, McHenry launched the first-ever congressional subcommittee that was solely devoted to digital assets and cryptocurrency. The Financial Services panel will be overseen by a leading figure in the space, House Republican French Hill of Arkansas. Lummis is the author of expansive legislation to regulate the crypto market. Senator Kirsten Gillibrand, D-N.Y., is planning to reintroduce the Responsible Financial Innovation Act in June. According to a spokesperson, the bill aims to “promote financial innovation while protecting customers and the financial system.”
