Lawmakers Challenge SEC to Revamp Crypto Custody Rules

U.S. lawmakers are setting the stage for a shift in cryptocurrency asset regulation. Representatives Mike Flood, Wiley Nickel, and Senator Cynthia Lummis have proposed a resolution that challenges the SEC’s restrictive Staff Accounting Bulletin 121 (SAB 121).

The SAB 121 rule, restricts banks from holding their clients’ cryptocurrency assets. Lawmakers say this discourages banks from entering the crypto space and unfairly restricts how crypto holdings are treated compared to other assets.

This is set to liberate banks from the requirement of holding client crypto assets on their balance sheets, a move that many argue stifles the growth of crypto custodianship among regulated banks.

A United Front Against Regulatory Overreach

The trio’s action seeks to nullify the SEC’s bulletin, arguing that it unfairly singles out crypto assets compared to other investments. The lawmakers contend that this regulation not only deters banks from embracing the role of crypto custodians but also imposes unnecessary hurdles on the path to innovation and security in the digital asset space.

Moreover, this initiative gained momentum following a memo from November 2023, where Congress members urged financial leaders to reassess the enforceability of SAB 121, especially after a Government Accountability Office review highlighted the need for a thorough examination under the Congressional Review Act.

Senator Lummis emphasizes the critical implications of SAB 121, urging for a more inclusive dialogue involving the public and federal banking regulators before such regulations take effect.

Echoing Lummis’s concerns, Representative Flood criticizes the SEC’s unilateral approach, championing Congressional oversight as a necessary check against regulatory excesses.

As the debate unfolds, the financial and crypto communities watch closely, hopeful that this legislative push will pave the way for more balanced and inclusive regulations in the digital asset domain.