US House Fails to Overturn SEC Crypto Custody Guidance

The US House of Representatives recently attempted to overturn President Biden's veto of a measure aimed at nullifying SEC guidance known as SAB 121.

This guidance mandates that banks and other financial institutions treat cryptocurrencies held on behalf of clients as liabilities on their balance sheets. This requirement has been contentious within the financial sector, as it complicates the offering of crypto custody services by large institutions.

Despite passing a bipartisan Congressional Review Act (CRA) resolution in both the House and Senate to nullify SAB 121, President Biden vetoed the measure back in May. The House vote to overturn the veto fell short of the required two-thirds majority, resulting in a 228-184 outcome on July 11.

Supporters of nullifying SAB 121 argue that the guidance diverges significantly from traditional accounting practices for custodial assets and poses challenges to providing secure custody of digital assets.

READ MORE:

Jerome Powell Advocates for Stablecoin Legislation by Year-End

They contend that these requirements undermine the industry’s ability to innovate and provide safe custody solutions to customers.

Meanwhile, the SEC has shown some flexibility by offering pathways for banks and brokerages to manage crypto holdings without necessarily listing them as liabilities.

This approach marks a departure from the strict enforcement of SAB 121 and aims to balance regulatory oversight with the need for financial institutions to innovate in the digital asset space. Despite these developments, SAB 121 remains in effect following the failed attempt to override President Biden’s veto, continuing to influence how financial institutions handle crypto custody.

Alexander Stefanov