Updated May 8, 2024 - Economy

House votes to overturn SEC guidance on crypto custody

Rep. Mike Flood arrives at a House GOP forum.

Rep. Mike Flood (R-NE), who introduced a resolution to repeal SAB 121. Photo: Chip Somodevilla/Getty Images

House lawmakers voted Wednesday evening to overturn a Securities and Exchange Commission staff bulletin related to digital asset custody accounting, with 21 Democrats voting "yea."

Why it matters: SAB 121 has become something of a lightning rod, uniting crypto shops and major banks against the SEC.

A significant block of Democrats broke from ranks just hours after a policy note landed from the Biden administration that discouraged passage of the repeal legislation, saying if it were presented to the President, he would veto it.

Catch up quick: The guidance memo at issue — officially Staff Accounting Bulletin (SAB) 121 — asks custodians of digital assets to account for them as a liability on their balance sheets.

  • Critics argue that it would deter banks from scaling a crypto business by imposing onerous capital requirements.

The big picture: The issue has become more salient for traditional Wall Street banks with the approval of the 11 spot bitcoin funds.

  • A slew of bank industry groups wrote to SEC chair Gary Gensler in February, saying: "These ETPs have already experienced billions of dollars in inflows, but it is practically impossible for banks to serve as custodian for those ETPs at scale."

The intrigue: Introduced in February by Representatives Mike Flood and Wiley Nickel, the resolution to repeal SAB 121 argues that the SEC effectively created a rule without going through the proper notice and comment process.

  • Crypto-friendly senator Cynthia Lummis (R-Wyo.) rolled out a companion measure in the Senate.

The other side: Gensler has defended SAB 121 since a Government Accountability Office (GAO) report deemed the memo a rule, and subject to the Congressional Review Act (CRA).

What's next: The resolution now moves to the Senate, where there appears to be strong support from Republicans.

Editor's note: This story has been updated with results of the House vote.

Go deeper