House Challenges SEC Over Crypto Custody Rules, Biden Vows Blockade

Zinger Key Points
  • President Biden vows to veto the resolution, defending SEC’s measures as essential for protecting consumers from crypto risks.
  • Bipartisan support emerges as 21 Democrats defy Biden's veto threat, highlighting internal divisions over cryptocurrency regulation.

The U.S. House of Representatives cast a decisive vote in favor of a resolution that seeks to overturn a controversial SEC cryptocurrency accounting directive, signaling a widening rift between legislative preferences and executive defense of regulatory measures.

What Happened: The resolution, aimed at rejecting the SEC's Staff Accounting Bulletin No. 121 (SAB 121), was championed by proponents as a necessary rollback of regulations that have stifled banks’ engagement with digital assets.

Introduced under the guise of ordinary staff guidance, SAB 121 has been heavily criticized for overstepping traditional regulatory bounds by mandating banks to include digital tokens they hold for customers on their balance sheets, a measure seen as disproportionately burdensome.

This guidance, critics argue, could impose significant capital expenses on banks, potentially discouraging them from providing custodial services to crypto businesses.

The resolution’s passage in the House included surprising bipartisan support, with 21 Democrats breaking ranks, undeterred by President Joe Biden's veto threat.

Also Read: Spot Bitcoin ETFs Clock $11M Net Inflows On Wednesday As Grayscale Shifts Focus To Spot Ether ETF

Why It Matters: The President has positioned himself firmly in defense of the SEC's actions, emphasizing the necessity of SAB 121 in addressing the “technological, legal, and regulatory risks” associated with crypto assets which, according to him, have previously led to “substantial losses to consumers.”

“SAB 121 was issued in response to demonstrated technological, legal, and regulatory risks that have caused substantial losses to consumers,” asserted Biden, underlining his strong opposition to any efforts that might undermine the SEC's regulatory framework.

The controversy surrounding the SEC's guidance, including its procedural shortcomings identified in a Government Accountability Office (GAO) review, has sparked significant debate about the appropriate balance of innovation and regulation.

Rep. Patrick McHenry (R-N.C.) condemned the guidance as a “massive deviation” from standard regulatory practices, while Rep. Maxine Waters (D-Calif.) cautioned against a too-forceful legislative response, suggesting a more measured approach might be more appropriate.

What’s Next: The ongoing conflict over SAB 121 underscores larger tensions within the U.S. regulatory landscape regarding digital assets, a topic that is also set to be a key focus at Benzinga’s upcoming Future of Digital Assets event on Nov. 19.

Read Next: JPMorgan Analysts Optimistic About Future Approval Of Spot Ether ETFs Despite Regulatory Hurdles

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