According to Blockworks, the Securities and Exchange Commission (SEC), under the leadership of Gary Gensler, has been criticized for its approach towards cryptocurrency regulation. Over the years, the SEC has been accused of overstepping its regulatory authority and hindering the sensible regulation of digital assets. A notable example of this is the Staff Accounting Bulletin 121 (SAB 121), which mandates publicly traded banks to include digital assets on their balance sheets. This contradicts the fundamental banking rule that custodial assets should be held off-balance sheet, causing banks to remain on the sidelines.
SAB 121 has been deemed detrimental to the digital asset market, as it prevents banks, who have decades of experience in providing custodial services to the traditional financial system, from participating. This exclusion is believed to make American investors less secure. The recent approval of bitcoin ETPs highlighted an issue: the bitcoin within these ETPs is not held by banks, and most have the same custodian. This is a concern that Gensler should address if he aims to protect retail investors.
The process of issuing the bulletin has also been criticized. The SEC issued SAB 121 without consulting banking regulators, and attempted to bypass the standard regulatory process by issuing a bulletin instead of a rule. This action was so controversial that the nonpartisan Government Accountability Office declared that SAB 121 is effectively a rule under the Congressional Review Act.
Last week, the US House of Representatives, with the support of 207 Republicans and 21 Democrats, advanced a bipartisan resolution, H.J. Res. 109, which seeks to repeal SAB 121. The Senate is now set to consider H.J. Res. 109. Supporters of the resolution hope that it will prompt a change in the SEC's approach to digital assets and ensure the safe custody of cryptocurrencies for the benefit of American investors.
