Lawmakers Weigh Overturning SEC’s “Illogical” Rule on Custody
During the upcoming hearing with the House Financial Services Committee, a key topic of discussion is anticipated to be a legislative proposal aimed at overturning a staff bulletin from the Securities and Exchange Commission (SEC). This appeal is a significant part of the committee’s agenda, as detailed in the memorandum for the hearing.
The contentious bulletin, known as SAB 121 and released in March 2022, mandates that companies holding cryptocurrencies for customers must reflect these holdings as liabilities on their financial statements. This requirement has been met with resistance and criticism from various stakeholders within the crypto community.
Some have labeled the bulletin as “illogical ,” while others argue that it should have been established through a more formal rule-making process. Despite the backlash, SEC Chair Gary Gensler has maintained his support for the bulletin, emphasizing its importance in protecting customer interests, particularly in bankruptcy proceedings.
In a notable development last week, Sen. Cynthia Lummis (R-Wyo.), along with Reps. Mike Flood (R-Neb.) and Wiley Nickel (D-N.C.), introduced a joint resolution aimed at nullifying the bulletin—notably, both Reps. Nickel and Flood are members of the House Financial Services Committee, highlighting the bipartisan interest and involvement in this issue.
SEC Faces Congress Disapproval for Bypassing Formal Procedures in Crypto Guidance
The Government Accountability Office (GAO) last year pointed out a significant procedural misstep when it identified that the Securities and Exchange Commission (SEC) had overstepped its bounds.
The issue at hand is how federal regulators employ staff guidance. Ideally, such guidance is meant to clarify and aid in interpreting existing policies.
The SEC faced criticism for using this guidance as a tool to introduce new policies, a move that did not sit well with Congress. The GAO specifically noted that the SEC should have properly introduced this new policy as a formal rule, adhering to the established regulatory processes and protocols, thereby ensuring appropriate legislative oversight and adherence to procedural norms.
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