House Fails to Override Biden’s Veto on Crypto Custody Guidance, SEC Offers New Path

The Securities and Exchange Commission’s Accounting Bulletin 121 (SAB 121) requires companies, including banks, to hold crypto assets for customers as liabilities on their balance sheets. This makes it inefficient for large banks to offer crypto custody services.

Both the House and Senate passed a bipartisan Congressional Review Act (CRA) resolution to overturn that guidance, which the Biden administration vetoed in May.

However, a House vote to override the veto fell short of the required two-thirds majority, falling 228-184 on July 11, American Banker reports.

SAB 121 threatens safe custody

The pro-crypto chairman of the House Financial Services Committee, Patrick McHenry, commented:

“This is a mandate from the Americans we represent. Despite all the recent progress and bipartisan agreement, President Biden vetoed the first specific digital asset legislation ever passed in the House and Senate.”

Hello, @POTUS— Do you notice anything in these images?

Congress sent a clear message from both sides of the aisle and on Capitol Hill: The @SECGovSAB 121 hurts consumers and makes our digital asset ecosystem LESS secure, not more. pic.twitter.com/40k7ssqnaH

— GOP Financial Services (@FinancialCmte) July 11, 2024

The American Bankers Association, the Banking Policy Institute, the Financial Services Forum and the Securities Industry and Financial Markets Association wrote a letter to the House this week saying:

“SAB 121 represents a significant departure from the long-standing accounting treatment of custody assets and threatens the industry’s ability to provide its customers with safe and sound custody of digital assets.”

However, the SEC is now providing a path for banks and brokerages to avoid reporting their clients’ crypto holdings on their balance sheets. This is a departure from the previous strict enforcement of SAB 121, Bloomberg reported on July 11.

Bloomberg’s Amanda Iacone said banks and financial institutions can avoid the controversial accounting guidance if they implement measures to offset the risks associated with crypto assets. This would involve ensuring the protection of the client’s assets in the event of insolvency or bankruptcy.

wow Is this the @SECGov Do you realize that the SAB 121 requirements need to be relaxed when it comes to banks and brokerages?

Reaction to the campaign for the change of Congress?

SEC allows some exceptions to crypto accounting compliancehttps://t.co/em3rkGyjjN via @Aiacone

— Eleanor Terrett (@EleanorTerrett) July 12, 2024

SEC softens, but SAB 121 remains

Additionally, several large banks have been consulting with the SEC since 2023 and have received approval to avoid balance sheet reporting under certain conditions.

Now, the SEC believes the original guidance has served its purpose, requiring companies to address the legal and security risks associated with crypto holdings.

This new, more flexible position could allow more banks and companies to offer crypto custody services, expanding options for US crypto holders.

However, despite the softening by the SEC, SAB 121 remains in place after the failed attempt to override Biden’s veto in the House this week.

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