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SEC’s Custody Rules for Digital Assets Dealt Another Blow in House Vote

House lawmakers voted Wednesday evening (May 8, 2024) to nullify a Securities and Exchange Commission staff bulletin concerning the accounting of digital asset custody.

The bulletin, SAB 121, has stirred considerable debate, drawing both cryptocurrency firms and major banks into opposition against the SEC.

In essence, the contested Staff Accounting Bulletin (SAB) 121 requires custodians of digital assets to treat them as liabilities on their financial statements. Critics argue this could hinder banks from expanding into crypto due to increased capital requirements.

The situation gains prominence as traditional Wall Street banks confront the rise of 11 spot bitcoin funds. Industry groups have voiced concerns to SEC Chair Gary Gensler, citing challenges in serving as custodians for these funds at scale.

The pushback against SAB 121 culminated in a resolution introduced by Representatives Mike Flood and Wiley Nickel, contesting the SEC’s authority to establish such rules without proper public input.

On the other side, Gensler maintains support for SAB 121, citing a Government Accountability Office report that classified the bulletin as a rule, thus subject to oversight under the Congressional Review Act.

The resolution now advances to the Senate, where it is expected to garner substantial support from Republicans.

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