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House Adopts Resolution to Invalidate SEC Bulletin on Listing Crypto as Liability

S.J. Steinhardt
Published Date:
May 10, 2024

On May 8, the U.S. House of Representatives approved a joint resolution to invalidate a Securities and Exchange Commission (SEC) staff accounting bulletin (SAB) requiring financial institution custodians to list cryptocurrencies on their balance sheets as liabilities, Accounting Today reported.

The 228-182 vote concerned SAB 121, issued in 2022, which, among other things, provides that those responsible for safeguarding the crypto-assets of their users should list these digital tokens as a liability on their balance sheets. The SEC said that the bulletin is necessary because the technological mechanisms supporting how crypto-assets are issued, held or transferred,—as well as legal uncertainties regarding holding crypto-assets for others—create significant increased risks to an entity, including an increased risk of financial loss.

The resolution was sponsored by Rep. Mike Flood (R-Neb.). In February, he and Rep. Wiley Nickel, (D-N.C.) introduced legislation that would overturn the provision entirely, citing reasons similar to those argued by a group of banking associations, which wrote to the SEC requesting it to modify this provision.

“With the disapproval resolution, the House is taking a stand to ensure that such significant changes go through the proper public rulemaking process,” said Amanda Russo, director of communications of the industry group Crypto Council for Innovation, in a statement reported by Decrypt. “This is vital for maintaining a competitive and innovative financial landscape.”

Ji Kim, Crypto Council for Innovation's chief legal and policy officer, told Accounting Today, "Traditionally, staff accounting bulletins are not designed to enact sweeping policy changes; they are meant to clarify existing rules. SAB 121, however, acts as a new rule, impacting core aspects of the financial and digital asset industries. SAB 121 should have been subjected to public feedback and regulatory scrutiny before implementation."

The Government Accountability Office (GAO) released a report last year in which it noted that  the SEC "did not submit a report pursuant to the Congressional Review Act (CRA) to Congress or the Comptroller General on the Bulletin." It further stated: "CRA requires that before a rule can take effect, an agency must submit a report on the rule to both the House of Representatives and the Senate as well as the Comptroller General, and provides procedures for congressional review where Congress may disapprove of rules. CRA adopts the definition of rule under the Administrative Procedure Act (APA) but excludes certain categories of rules from coverage. We conclude the Bulletin is a rule for purposes of CRA because it meets the APA definition of a rule, and no exceptions apply. Therefore, the Bulletin is subject to the requirement that it be submitted to Congress."

The resolution now goes to the Senate, where Sen. Cynthia Lummis (R-Wyo.) has introduced a companion measure. On May 8, the White House issued a statement in which it said that President Joe Biden would veto the resolution if it were to be presented to him.

Kim, of Crypto Council for Innovation, told Accounting Today that if this resolution does not pass, the crypto market and those who interact with it will be subject to onerous requirements.

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