On Thursday, members of Congress put forward a bill that aims to provide a bipartisan partnership; the goal being to reverse the Staff Accounting Bulletin 121 (SAB 121) issued from the Securities and Exchange Commission (SEC).
Senator Cynthia Lummis, a Republican from Wyoming has teamed up with Representative Wiley Nickel, a Democrat representing the state of North Carolina in addition to Mike Flood a Nebraska Republican to legislate on an attempt at tackling SAB 121 under the Congressional Review Act. The current measure requires the banks trading in crypto assets to show corresponding liability for it on the balance sheets.
Is The SEC Overstepping Regulatory Authority With SAB 121?
In recent days, Senator Lummis’ office released a press release pointing out the immense threat that was presented by SAB 121. This initiative, according to the release, carries grave consequences for both consumers and banks as it blurs the line between customer assets and bank assets, thereby jeopardising the fundamental framework of crucial custody services and amplifying the risk of consumer bankruptcy.
Representative Nickel voiced his critique of the accounting bulletin, arguing that the SEC’s continuous tendency to exceed regulatory boundaries demonstrates its regulatory framework for digital assets as unsustainable.
Upping the Crypto Regulation Pace, Congress
Even when it is not the first time as in a number of cases, the SEC has often faced allegations concerning unsoundness of their regulatory standing. However, despite the current Congress censure, cases like this keep recurring in the organisation.
In a CNBC interview last July 2023, Paul Grewal, acting as chief legal officer and general counsel at Coinbase asserted that America’s economic leadership is negatively impacted by over-enforcement and lack of clear regulations from the Securities and Exchange Commission (SEC), to guide the digital asset industry.
In addition, a recently published report by 21Shares, which is an exchange-traded product provider, illustrates the negative effect of the lack of regulatory clarity on many valuable cryptocurrency firms that leave the country for others to operate in.
Representative Flood emphasized the importance of Congress acting as a safeguard against regulatory overreach. He expressed pride in collaborating with Senator Lummis and Congressman Nickel to introduce a bipartisan resolution of congressional disapproval, effectively fulfilling their duty in this regard.
SEC Chair Gary Gensler Doubles Down
The SEC faced a legislative pushback on Thursday, but it found support among certain players in the banking industry who voiced their opinions.
The president and CEO of the Securities Industry and Financial Markets Association, Kenneth E. Bentson Jr., highlighted that SAB 121’s regulation on balance sheet recognition departs from the customary accounting approach for conventional assets held in custody. Under this regulation, such assets need not be documented on a company’s balance sheet. Bentson Jr. further emphasized that due to its profound impact on bank capital and liquidity ratios, SAB 121 has discouraged banks from offering custodial services for digital assets.
Bentson affirmed our agreement on the necessity of regulatory oversight, emphasising the importance of a thorough and thoughtful procedure to prevent any unforeseen repercussions.
In December, during an event held by the American Bar Association, SEC Chair Gary Gensler presented a staunch defense of SAB 121 as stated in a report by Thomson Reuters. Gensler characterized it as a mere staff accounting bulletin that essentially tackles the matter of including liabilities on a balance sheet.
Lummis discussed her worries regarding the insufficient feedback from federal banking regulators and the general public ahead of the implementation of SAB 121, which she referred to as a binding mandate with profound effects on the regulatory environment.
Frequently Asked Questions:
Congress is challenging SAB 121, but what exactly is this and why is it being contested?
Proposed by members from Congress, including Senator Cynthia Lummis and representatives Wiley Nickel and Mike Flood comes a bipartisan effort seeking to challenge and potentially overturn the controversial directive – known as SAB 121 or Staff Accounting Bulletin 121. As per the instruction by the Securities and Exchange Commission (SEC), banks are required to present a liabilities account that mirrors an equivalent liability on their balance sheets when storing cryptocurrency assets.
What are the specific worries that Congress representatives hold about SAB 121?
However, concerns have been pointed out by members of Congress over what could happen if SAB 121 will be implemented because it appears as though this law would make the distinction between bank customer assets and those belonging to banks unclear. However, this has enormous potential consequences for consumers and the banks themselves. According to these members, SAB 121 puts at risk some critical custody services besides increasing the chances for debtor consumers that a bankruptcy filing will come into being.
Is there a collaborative attempt from both political parties to contest the implementation of SAB 121?
Senator Cynthia Lummis (R-WY), Representative Wiley Nickel (D-NC), and Mike Flood (R-NE) have pooled their resources, aiming to resolve SAB 121 on the grounds of a congressional review act
What exactly is the ground on which the assertion that SEC is intruding beyond its mandate to regulate by the imposition of SAB 121 relies?
Representative Wiley Nickel and other critics claim that the SEC’s handling of digital assets in SAB 121 is yet another example of the regulatory body exceeding its authority. They vehemently oppose the regulatory standpoint on digital assets, deeming it as unsustainable.
What is the effect of SAB 121 on the banking sector and companies operating in the cryptocurrency market?
The inclusion of cryptocurrency assets on SAB 121’s balance sheet has faced backlash for diverging from the accounting norms for conventional assets. This discrepancy is believed to discourage banks from offering custody services for digital assets, consequently affecting their capital and liquidity ratios. Furthermore, 21Shares’ report suggests that the uncertainty surrounding regulations is prompting significant crypto companies to contemplate relocating outside their home countries.
How does SEC Chair Gary Gensler react to SAB 121?
SEC Chair Gary Gensler has come forward to support SAB 121, asserting that it is nothing more than a staff accounting bulletin that tackles the inclusion of liabilities on a balance sheet. Nevertheless, detractors, Senator Lummis among them, contend that a directive of such magnitude should have been subjected to extensive input from federal banking regulators and the public before being put into effect.
Are there any apprehensions regarding the influence of SAB 121 on the ratios of bank capital and liquidity?
SAB 121 regarding the recognition of crypto assets on balance sheets by Kenneth E. Bentson Jr., Securities Industry and Financial Markets Association president and CEO has increased the alarm about possible outcomes. He is concerned that such might affect banks’ provision of custodial services, whose effect will go on to adverse the capital and liquidity ratios. These ripple effects are unintended yet significant.
How does Congress perceive its responsibilities when it comes to dealing with regulatory matters such as SAB 121?
Congressional representatives, such as Representative Mike Flood, highlight the significance of Congress serving as a safeguard against excessive regulations. They emphasize the need for a careful and thorough regulatory procedure to prevent any unforeseen outcomes, especially considering the dynamic nature of industries like digital assets.
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