Reversed Fortunes: SAB121's Demise Initiates Crypto Policy Reform

In recent times, the Senate has voted to overturn the SEC’s Staff Accounting Bulletin No. 121—also known as SAB121. Following this, the Biden administration has vowed that he would veto this bill if it were passed. So what is all this fight about, and what is the big hoo-ha behind this bill?

What is the SAB 121 law all about? 

SAB 121 states that financial institutions holding crypto assets for customers must record their assets on their balance sheet as liabilities. Contrary to traditional asset custody practices, the guidance aims to enhance transparency and accountability, ensuring that financial institutions are adequately prepared to safeguard customers' assets against potential losses.

What is the fight all about? 

This bulletin has drawn controversy over the past year over concerns that it could prevent banks from safeguarding digital assets. “The SAB121, which was introduced to ensure clearer accounting standards for financial institutions holding cryptocurrency assets, stating that it might impose undue burdens on banks and stifle innovation in the rapidly evolving crypto market,” critics say.

However, Biden and his administration contend that the regulations are essential to protect the interests of consumers and to also ensure financial stability. President Biden argues that overturning the SEC’s guideline would undermine the commission’s authority over accounting practices. Biden believes that without the SEC overseeing the regulations and intervening to maintain a comprehensive and effective financial regulatory framework for crypto-assets would destabilize the financial market and create massive market uncertainty.

The act of rebellion 

The SEC’s guidelines, which were scheduled to take effect on April 11, faced substantial pushback from both the crypto community and lawmakers. The House of Representatives had voted 228 to 182 to repeal the guidelines, and the Senate followed suit with a 60 to 38 vote in favor of repeal.

Something that was worth mentioning was the 12 Democrats who defied Senator Warren and the White House to vote for the bill. But something even more shocking was Senate Majority Leader, Chuck Schumer breaking ranks on this issue, sending out a massive statement against the administration’s crypto policy. It would be a fatal mistake to assure that he would be joining the pro-crypto camp anytime soon, but his decision showed that his issues had to do with federal overreach.

The controversy of SAB 121 

But why would the 12 Democrats do something so risky? Is the bill surrounding the rules and regulation of digital assets worth risking their rice bowl for? Or is there a deeper reason behind this decision?

The recent legislative action to overturn SAB 121 is a resounding statement against what many saw as undue regulatory overreach that hampered the ability of banks to do business in the modern economy. The move to overturn SAB 121 has showcased an interesting dynamic in U.S politics. With 21 Democrats joining Republicans in the House, and notable Democratic senators siding with the repeal in the Senate, there’s a clear indication of shifting tides. Lawmakers were likely drawn to this issue by a combination of recently having improved their understanding of the technology and economic implications of bitcoin as well as recognition that the SEC has been operating beyond its mandate.

When SAB 121 was first created, it received heavy criticism from the Government Accountability Office (GAO) for effectively a rule that was passed without going through the standard rule-making procedure.

Maybe this overstepping of the boundaries was something that ticked these Democrats off, resulting in them defying all odds to overthrow the SAB 121 law. It seems that Congress is no longer willing to tolerate policy being made through back-room regulatory threats and unchallengeable guidance.

This could be their way of expressing that no-one is above the law. This has been a common sentiment that has been made by many others as well. Senator Cynthia Lumus tweeted that “this is a win for financial innovation, and a clear rebuke of the way the Biden Administration and chair Gary Gendler have treated crypto assets and marks the first time both chambers of Congress have passed standalone crypto legislation.”

What else would each of them be fighting for? 

Financial innovation and technology for the 21st Century Act (FIT21), primarily it allocates regulatory roles to SEC and the CFTC, the most important being oversight of Bitcoin spot markets. The bill also provides a framework for determining which tokens are securities and which are commodities.