The United States House of Representatives has failed to overturn President Biden’s veto of a measure that would have nullified SEC guidance on crypto custody services.
The Security and Exchange Commission’s accounting bulletin 121 (SAB 121) requires companies, including banks, to hold crypto assets for clients as a liability on their balance sheets. This makes it inefficient for large banks to offer crypto custody services.
Both the House and Senate passed a bipartisan Congressional Review Act (CRA) resolution to nullify this guidance, which the Biden Administration vetoed in May.
However, a House vote to overturn the veto failed to reach the required two-thirds majority, with a 228-184 result on July 11, according to reports by the American Banker.
SAB 121 Threatens Safe Custody
Pro-crypto Chairman of the House Financial Services Committee, Patrick McHenry, commented:
“That is a mandate from the Americans we represent. Despite all of the recent progress and bipartisan agreement, President Biden vetoed the first digital-asset-specific legislation to ever pass the House and Senate.”
The American Bankers Association, Bank Policy Institute, Financial Services Forum, and the Securities Industry and Financial Markets Association penned a letter to the House this week stating:
“SAB 121 represents a significant departure from longstanding accounting treatment for custodial assets and threatens the industry’s ability to provide its customers with safe and sound custody of digital assets.”
Nevertheless, the SEC is now offering a path for banks and brokerages to avoid reporting their customers’ crypto holdings on their balance sheets. This is a departure from the previous strict enforcement of SAB 121, reported Bloomberg on July 11.
Bloomberg’s Amanda Iacone said that banks and financial institutions can bypass the controversial accounting guidance if they implement measures to offset risks associated with crypto assets. This would involve ensuring customer asset protection in case of bankruptcy or failure.
SEC Softens, But SAB 121 Remains
Moreover, several large banks have been in consultation with the SEC since 2023 and have received approval to bypass balance sheet reporting under certain conditions.
The SEC now believes that the original guidance has achieved its purpose, prompting companies to address security and legal risks associated with crypto holdings.
This new, more flexible stance could allow more banks and companies to offer crypto custody services, expanding options for American crypto holders.
However, despite the softening of the SEC, SAB 121 remains in place following the failed attempt to override Biden’s veto in the House this week.