After a House resolution Wednesday night to end an accounting practice by agencies was passed, President Joe Biden promised to support Gary Gensler.
The House on Wednesday approved joint resolution 109 — which would invalidate the SEC’s Staff Accounting Bulletin (SAB) 121 — in a 228-182 vote. Biden’s administration has warned they will veto it if it reaches President Obama’s desk.
“Limiting the SEC’s ability to maintain a comprehensive and effective financial regulatory framework for crypto assets would introduce substantial financial instability and market uncertainty,” In a written statement released on Wednesday, the Biden administration explained its position.
SAB 121 was introduced in March of 2022, and enacted that month. It states digital asset custodians must report a financial liability. “corresponding assets” The SEC staff said that the practice is intended to guard against the misuse of cryptocurrencies. Staff at the SEC said that this practice is meant to protect against fraud. “significant risks and uncertainties associated with safeguarding crypto assets.”
In February, the House was presented with a joint resolution by Reps. Mike Flood R-Neb., Nick Wiley D-N.C., Tom Emmer R-Minn., Darren Soto D-Flo., and French Hill R-Ark.
“The SEC issued SAB 121 without conferring with prudential regulators despite the accounting standard’s effects on financial institutions’ treatment of custodial assets, and the SEC issued SAB 121 without going through the notice-and-comment process,” Rep. Flood spoke about the resolution earlier in this year. “In the face of overreach by a regulator, it is the role of Congress to serve as a check.”
The SEC stated that while SABs do not have enforceable legal status under the Securities Act, staff use them for their interpretations and practice. SABs don’t require public notification or comment periods. They also do no reflect official approval from Commissioners. Flood, along with his cosponsors, find this troubling.
The joint resolution was passed Wednesday by all House Republicans voting. 21 Democrats backed the measure as well.
Cynthia Lummis of Wyoming, who is a staunch crypto-supporter and has long been in favor, brought a similar joint resolution to the Senate, even though she was unable to get bipartisan backing. Lummis’ efforts have not progressed to Committee review or vote. Now that the House resolution has made its way to Senate, it is almost dead.
Gensler defended SAB-121 in December 2023, saying that it was “just a staff accounting bulletin,” The precedents set by the US bankruptcy court are consistent with this.
“It basically addresses whether liabilities should be on balance sheet, and what we have found actually in bankruptcy court, time and again, many times now, that indeed bankruptcy courts have said that crypto assets are not bankruptcy remote,” Gensler made the statement during an appearance by American Bar Association in December 2023.
Gensler’s agenda could be slowed down significantly after the election, even though he has denied working against the time. If Republicans win control of both chambers this November, it is likely that additional attempts to undermine and overturn agency policy will continue.
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