Adding on to the outright criticism of the U.S. Securities and Exchange Commission’s (SEC) overreach around crypto asset regulation, top Republican lawmakers are demanding that an April 2022 rule issued by the SEC around crypto accounting be blocked.
On April 11, 2022, the SEC issued the Staff Accounting Bulletin (SAB) 121, which was originally intended to streamline the accounting treatment of crypto assets by banks and financial institutions.
However, the likes of Patrick McHenry, chairman of the US House Financial Services Committee, have come out strongly against the ‘harmful’ nature of the rule. McHenry said the US SEC did not go through the “normal process of federal rulemaking” and hence, a Congressional review is appropriate.
The Republican lawmakers noted that the rule acts as a deterrent to companies revealing crypto asset balances in their reserves. This would prevent institutions and firms from offering custodial services—denying Americans access to safe and secure custody of their assets, they said. In the recent times, the House Financial Services Committee had been pushing for Clarity for Payment Stablecoins Act of 2023, to establish a regulatory framework on stablecoins.
In May 2022, crypto exchange Coinbase flagged a ‘new risk factor’ based on the SEC’s SAB 121 requirement. However, it had at the time clarified that it did not face any risk of bankruptcy. In its April 2022 bulletin, the Commission mentioned rules for entities like Coinbase who hold crypto assets for its customers.
The firm’s financial statements should be reported with clear disclosure of the nature and amount of crypto assets. This could also put customer data privacy at risk.