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Legislation to Permit Banks’ Crypto Custody Services Advances in Financial 

The U.S. House Financial Services Committee has progressed a resolution aiming to reject SEC SAB 121, a bulletin excluding banks from the cryptocurrency custody provider market. Despite bipartisan backing, Variant CLO Jake Chervinsky suggests the resolution faces challenges in passing a House floor vote.

The House Financial Services Committee Moves Forward with Resolution to Nullify SEC SAB 121

A sector of the U.S. Congress is taking steps to overturn the safeguards implemented by the U.S. Securities and Exchange Commission (SEC) that bar banks from the U.S. crypto custody market. On February 29, the House Financial Services Committee pushed forward Resolution 109, aiming to reject the SEC’s Staff Accounting Bulletin 121 (SAB 121).

The accounting bulletin in question provides instructions to institutions on how to account for responsibilities related to safeguarding crypto assets held for platform users. Rep. Mike Flood (R-NE), co-submitting the bill with Rep. Wiley Nickel (D-NC), accuses the U.S. SEC of overreach, claiming that SAB 121 has essentially prevented highly regulated institutions from acting as custodians for digital assets. Flood further points out that this policy excludes all companies offering custody services for bitcoin ETF purposes that are not banks.

SAB 109, released by the SEC on April 11, 2022, mandates that any financial entity offering custody services for cryptocurrency must recognize a liability on its balance sheet to represent its duty to protect the crypto-assets held for its platform users. The resolution, under the Congressional Review of Agency Rulemaking (CRA), declares that such a rule should be considered null and void.

The resolution is set for a vote on the House floor, but Jake Chervinsky, Chief Legal Officer of the crypto venture capital firm Variant, has expressed skepticism about its passage. On X (formerly Twitter), he highlighted the improbability of the bill (1) receiving a vote on the House floor, (2) passing through the Democratic-controlled Senate, and (3) being signed into law by the President of the United States.

Better Markets, a nonprofit organization advocating for increased transparency in commodity markets, expressed disapproval of the move, arguing that the SEC’s Staff Accounting Bulletins (SABs) are the outcome of meticulous consideration and the informed perspectives of seasoned experts. Furthermore, it questioned the ability and insight of Congress in handling such complex issues.

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