Year-Old SEC Staff Bulletin Draws Additional Criticism From Crypto-Friendly Senators

Jimmy Aki
Last Updated:

Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.

The Securities and Exchange Commission (SEC) has implemented several policies to maintain order in the country’s financial space.

However, once again, another of its policies has been flagged as detrimental to the growth of the cryptocurrency industry.

SAB 121’s Unintended Side Effects

On Thursday, Sen. Cynthia Lummis (R-WY) and Rep. Patrick McHenry (R-NC) shared a letter in which they criticized the SEC over crypto accounting guidelines released by the regulator.

The guidelines, Staff Accounting Bulletin (SAB) 121, were first unveiled and implemented last year. However, they have come under fire for their possible effects on crypto investors and customers. 

Primarily, the accounting guidelines require financial companies holding crypto for their customers to recognize digital assets they can’t control as liabilities.

Additionally, they state that cryptocurrencies being held should be backed by a separate safeguarding asset.

Nevertheless, Sen. Lummis and Rep. McHenry argued earlier this month that the guidelines would only discourage regulated financial companies from custodying digital assets.

In a letter sent to ranking individuals at several agencies, including the Office of the Comptroller of the Currency, the Federal Reserve System, and the Federal Deposit Insurance Corporation, the lawmakers argued that they recognize the intention of the SAB 121 to provide clarity on the accounting treatment of cryptocurrencies.

However, they argued that the guidelines had created several negative side effects.

Among other things, they argued that the guidelines place customer assets at even greater risk if an asset custodian goes insolvent. They believe this violates the SEC’s primary objective to ensure investor protection. 

This isn’t the first time SAB 121 will be criticized for its possible effects on the crypto industry. After it was released last year, several senators, including Bill Hagerty (R-TN), Thom Tillis (R-NC), and Lummis herself, sent a letter to SEC Chairman Gary Gensler, arguing that the bulletin amounted to regulation disguised as guidance. 

As the lawmakers explained, the usual trend with SEC bulletins is to provide guidance on existing regulations. However, SAB 121 doesn’t cite a single regulation, primarily an offshoot of the fact that there are no clear regulations for the crypto industry.

Besides this, the lawmakers also claimed that the bulletin had been worded as though the SEC expected immediate compliance, even though staff bulletins aren’t intended to create any enforceable obligations. 

These arguments appear to have been founded, considering that the SEC has essentially operated as though financial institutions should immediately comply with the requirements of the staff bulletin. 

Yet Another Crypto Takedown

As expected, this also appears to be the latest move in a round of exchanges between the SEC and the crypto market. With the agency keen on bringing crypto industry operators to heel, it has met significant pushback on almost every regulation attempt. 

Last month, the agency voted in favor of new rules which, according to a statement from Gensler, will require several companies in the market to register as asset custodians.

This would mean tighter restrictions on the types of crypto companies that can custody customers’ assets, especially considering the SEC’s current guidelines on becoming a qualified custodian. 

As expected, this ruling has also been criticized. Hester Pierce, a Commissioner at the SEC known for her pro-crypto stance, explained in her statement that the guidelines would do more harm than good and force investors to withdraw their assets from several crypto companies that already have safeguards in place.

Pierce implied that the SEC only made this move to take down the crypto space, inflicting more pain on an asset class that has suffered a lengthy bear market.

Nevertheless, the guidelines are expected to pass as a majority of the SEC’s top brass already voted in favor of it. 

About Jimmy Aki PRO INVESTOR

Based in the UK, Jimmy is an economic researcher with outstanding hands-on and heads-on experience in Macroeconomic finance analysis, forecasting and planning. He has honed his skills having worked cross-continental as a finance analyst, which gives him inter-cultural experience. He currently has a strong passion for regulation and macroeconomic trends as it allows him peek under the global bonnet to see how the world works.