The US Securities and Exchange Commission (SEC) allowed a loophole in Staff Accounting Bulletin 121 (SAB 121). This path favoring banks comes as legislators failed to overturn President Joe Biden’s veto of a controversial bid.
Originally, proposed rules under SAB 121 legislation require crypto-holding entities reporting to the SEC to include those holdings on their balance sheets.
Legislators Fail To Overturn President Joe Biden’s Veto
The US House of Representatives failed to override President Biden’s veto and revoke SAB 121 in a Thursday vote. As it happened, “Yes” votes to overturn were more, but failed to meet the two-thirds threshold requisite to rescind Biden’s decision. During the July 11 vote:
- 228 House members voted for HJ Res. 109 to end SAB 121
- 184 members voted against the resolution,
- 21 members abstained.
In the May vote, however, the House voted in favor of the resolution 228 to 182, while 19 abstained. During the Senate vote, the “Ayes” had it 60 to 38, whereas only two chose to abstain. Notably, with more voting to overturn the veto, Fox Business reporter Eleanor Terrett highlighted shifts instances.
“Drew Ferguson was the only Republican that voted against overturning Biden’s veto today despite voting in favor of H.J. Res. 109 in May. Will be interesting to know what was behind the pivot. Meanwhile, the 21 Democrats that voted to overturn today were not the same as the 21 that voted in favor of H.J. Res 109,” Terrett wrote.
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Despite the failure to override, the fight is not over for some. Representative Mike Flood said he would still look for ways to end SAB 121, the government’s tool in derailing the future of digital finance. The Blockchain Association and the American Banking Association are also against it.
“SAB 121 precludes banks from offering digital asset custody at scale, limiting bank adoption ofBitcoin ETFs and tokenization,” the American Banking Association noted, expressing support for overturning SAB 121.
However, the US SEC bulged amid these concerns, allowing some exceptions to crypto accounting compliance.
SEC Allows Exceptions to SAB 121, But There’s a Catch
As if to assuage the situation, the US SEC has allowed public companies not to report their customers’ crypto holdings on their balance sheets. However, this is on condition that firms countervail the risks that those assets pose. According to the regulator, this will help navigate restrictions in SAB 121.
On this exception, the SEC acknowledges that some arrangements do not warrant reporting of a liability on the balance sheet. Reportedly, some banks have been consulting with the regulator since 2023 and were allowed to bypass the balance sheet reporting. The SEC’s condition is that these banks must:
- Protect their customers’ assets in case of bankruptcy.
- Establish internal safeguards to protect customer holdings in case of bank failure.
- Address legal risks relating to the growing digital asset class
According to the US SEC, this arrangement works, with companies adjusting to mitigate risks hacking and business collapses pose to investors.
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The SEC SAB 121 loophole comes as spot Bitcoin ETFs (exchange-traded funds) approvals in January increased crypto’s allure. Financial institutions progressively want a piece of the cake and continue to pressure the SEC. This accountancy stance could increase investors’ options for avenues to store their holdings.
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