Is there still hope for overturning SAB 121? Biden's encryption policy stance may continue to loosen under pressure

On July 12, members of the U.S. House of Representatives voted on a resolution related to the cryptocurrency accounting bulletin SAB 121, but failed to overturn the previous veto of SAB 121 by U.S. President Biden.

But next, crypto-friendly lawmakers may continue their efforts to break the constraints of SAB 121 by passing a new bipartisan bill, the Uniform Treatment for Custodial Assets Act, which may also pass the U.S. House of Representatives Appropriations Committee, budgetary constraints on implementation of SAB 121. Meanwhile, an SEC source revealed that some companies and financial institutions have proposed business practices that have received approval from SEC staff that would exempt them from the controversial SAB 121.

In addition, Biden’s senior advisers recently participated in a cryptocurrency roundtable gathering with big names, releasing more positive signals.

The U.S. House of Representatives failed to stop Biden’s veto of SAB 121

On July 12, members of the U.S. House of Representatives voted on a resolution related to the Cryptocurrency Accounting Bulletin SAB 121, with a vote of 228 to 184. Because the vote failed to meet the two-thirds majority (290 votes) threshold, the SEC's audit guidance will remain in effect.

In the past year, SAB 121 (Staff Accounting Bulletin No. 121) required digital asset custodians to treat digital assets as liabilities and list them on the balance sheet at fair value. There is widespread concern in the cryptocurrency industry that it could prevent banks from custody of digital assets, excluding banks from the crypto market.

In February of this year, U.S. Congressman Mike Flood, a Republican from Nebraska, and Wiley Nickel, a Democrat from North Carolina, introduced a resolution to overturn the proclamation. Subsequently, the House of Representatives passed a measure to overturn SAB 121 in May this year by a vote of 228 to 182. Supporters of overturning the bill were mainly Republicans and 21 Democrats. A week later, the U.S. Senate passed a resolution to overturn SAB 121 by a vote of 60 to 38, with several Democrats including Senate Majority Leader Chuck Schumer also voting in favor.

But then, the resolution to overturn SAB 121 was vetoed by US President Biden.

The White House said in a policy statement in May: "The Administration strongly opposes the passage of H.J. Res. 109, which would disrupt the SEC's work to protect investors in the crypto asset market and safeguard the broader financial system." The SEC said SAB 121 is “Non-binding employee guidance” designed to enhance disclosures to investors.

Now, despite the House vote failing to override Biden’s veto, crypto-friendly lawmakers have not given up on their efforts and are already working on a plan B. Rep. Mike Flood, a Republican from Nebraska, said he hopes to pass "a regular piece of legislation" to overturn the SEC's guidance through a related bill and attach it to the must-pass legislative document, which would provide relief to Democrats. Pressure to openly contradict the president.

According to a Democratic staffer familiar with the thinking of House leaders, they had not expected how many Democrats would change their votes on July 10.

They believe in passing HR 5741, the Uniform Treatment for Custodial Assets Act, which was introduced by Mike Flood, the main legislative promoter mentioned above, and sponsored by French Hill, Wiley Nickel) and Ritchie Torres co-sponsored a bipartisan bill that would provide a better path to overturning SAB 121.

In addition, the U.S. House Appropriations Committee also included a policy rider in its budget bill prohibiting the SEC from using related appropriations Funding implements SAB 121. However, the bill must be approved by the Senate before it can take effect.

Allowing some companies to bypass SAB 121, may the SEC open a backdoor?

According to a report by Bloomberg Tax, an SEC source revealed that some companies and financial institutions have proposed business practices that have obtained the consent of SEC staff, making them exempt from the controversial SAB 121.

SAB 121 was released in March 2022. With some companies in the cryptocurrency industry frequently going bankrupt, some companies have been seeking advice from the SEC on how to develop new policies and procedures related to cryptocurrency, the source added , the legal guidance SAB 121 itself has not changed.

SAB 121 took into account some of the actual encryption industry conditions at the time. “In April 2022, there are still many unanswered questions about how these laws will be implemented, and we are seeing many cryptocurrency industry players not being careful enough in providing these services, hurting many customers,” the SEC source said .

The source added that now some companies have proven that certain procedures and technologies they have set up can allow customers to retrieve their cryptocurrencies in the event of bankruptcy just like other assets (such as US dollars), and therefore do not need to comply with SAB 121 obligations. .

Nonetheless, more information and disclosures are currently needed to determine which companies will be eligible to circumvent the constraints of SAB 121 and what the SEC’s policy position will be on related initiatives.

Senior adviser to Biden participated in the encryption roundtable and delivered key signals

Just two days ago (July 10th), Anita Dunn, a senior adviser to Biden, met in a personal capacity with dozens of leaders in the cryptocurrency field. This roundtable was organized by encryption-friendly California Democratic Rep. Ro Khanna. The crypto roundtable organized by Khanna also included Sen. Kirsten Gillibrand, D-N.Y., and Rep. Joe Neguse, D-Colorado, as well as billionaire Mark Cuban, who supports Biden’s re-election but criticizes his administration’s treatment of cryptocurrencies. .

Many guests at the meeting said the meeting was "productive" and praised California Democrats for arranging the roundtable.

“I really have to give Congressman Khanna a lot of credit for being able to bring together about 30 or more industry leaders and give them the opportunity to communicate directly with Ms. Dunn and her team that extends to the White House,” Cryptocurrency Exchange Paul Grewal, Chief Legal Officer of Coinbase said.

Grewal described the meeting as a “pivotal moment” for the Biden administration to reverse its “nearly unanimous hostility” to cryptocurrencies, at a time when Republicans and former President Trump are supporting the industry. He said: “We are at a critical moment where Republicans are fully embracing cryptocurrencies and incorporating it into their party platform in a very specific and clear way in the upcoming conference. So I think what the current administration needs to do now is "Crypto Council for Innovation CEO Sheila Warren said, "It is clear that the guests in attendance understand the importance and opportunities that cryptocurrencies provide." She added in a statement: "I am excited about the future of the conversation. Full of hope and an even stronger advocate for the promise of this groundbreaking technology to transform many systems."

Now, as the next televised debate and general election voting day approaches, it's left to Biden to affirm his commitment in the face of Republican pressure. Time is running out for a crypto policy stance.

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