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Senate Passes Measure to Revoke SEC’s Accounting Policy on Crypto

The U.S. Senate joined the House recently in attempting to repeal the U.S. Securities and Exchange Commission (Sec0 cryptocurrency policy, Staff Accounting Bulletin No. 121 (SAB 121). The senate passed the measure in a 60 to 38 vote, although President Joseph Biden has promised to veto the measure. Concerns remain in the crypto sector about banking constraints as President Biden argued that removing the rule could hinder efforts to protect investors and ensure the financial system’s stability.

The resolution garnered support from a dozen Democrats who joined a majority of GOP lawmakers, surpassing the bare majority required for passage. It did not, however, receive enough votes to avoid a veto.

Chuck Schumer, Senate majority leader, also opposed the SEC’s crypto initiative, aligning with other Democratic leaders against it. The senate’s leading proponent of the resolution, Senator Cynthia Lummis (R-Wyo.), criticized SAB 121, labeling it a “disaster” that didn’t adequately safeguard consumers. According to Lummis, the vote is a significant critique of the way the SEC and the Biden administration have handled cryptocurrency assets and a win for financial innovation. She pointed out that it was the first time that independent crypto legislation had been passed by both chambers.

SAB 121, which was issued by the SEC in 2022, mandated that businesses holding clients’ cryptocurrency should include those assets on their balance sheets. This requirement could have a significant effect on banks that work with cryptocurrency clients. The SEC mismanaged what should have been a written rule instead of staff guidance, according to the Government Accountability Office, which echoed Republican lawmakers’ criticism of the agency for eschewing the official rule-making process.

Following the vote, a representative for the SEC responded, noting that SAB 121 is a nonbinding guidance meant to enhance investor transparency in companies that protect cryptocurrency holdings. The spokesman clarified that the guidelines are intended to avoid scenarios in which cryptocurrency companies collapse and clients are forced to file for bankruptcy in an attempt to recover their money.

Republican legislators have long opposed the use of guidance documents by federal financial authorities, claiming that they overreach their regulatory powers and place excessive burdens on sectors of the economy that cannot afford to disregard them.

Lawmakers in both the senate and house targeted SAB 121 using the Congressional Review Act, which permits Congress to overrule federal regulations. Many Democrats, including 21 house representatives, joined the predominantly Republican initiative, defying the White House’s objections.

Representative Mike Flood, a key figure behind the resolution, described the vote as a “landmark result” with bipartisan backing. He urged Biden to reconsider his veto threat and sign the resolution to push the SEC to change its approach, promoting the growth of the digital financial sector. Flood noted that if the policy is overturned through the CRA, it would legally prevent the SEC from enacting similar regulations in the future, which the White House suggested could restrict the SEC’s ability to regulate cryptocurrency assets effectively.

Cosponsor Representative Wiley Nickel expressed frustration that the house had to resort to the CRA. He reiterated his call for the SEC to withdraw SAB 121 before it reaches Biden’s desk.

This vote represents a significant moment for the crypto industry, marking the first time Congress has moved on an issue specifically aimed at supporting the sector, aside from a previous cryptocurrency taxation provision included in an infrastructure law despite industry opposition.

Crypto industry actors such as Bit Digital Inc. (NASDAQ: BTBT) may be hoping that more favorable Congressional decisions are made so that the nascent industry can be allowed to grow while also offering adequate protection to investors.

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