US Legislators to Enable Crypto Custodial Services for Banking Institutions
House Financial Services Committee recently passed a resolution to overturn the Staff Accounting Bulletin no. 121. The HFSC voted in favor of the resolution that seeks to dissolve guidelines from the Securities and Exchange Commission.
This SEC resolution prevented banking institutions from offering crypto custodial services. On a 29th February meeting, 31 members from HFSC hailing from either side of political aisles voted to pass the overture.
Customer Protection Guidelines
Meanwhile, around 20 members voted against this resolution. HFSC officials issued a statement on the matter noting that SAB 121 overture will introduce consumer protection steps. The statement noted that the new regulations will enable regulated banks to act as custodian services providers for digital assets. SEC issued the preventive guidelines as part of Staff Accounting Bulletin No.121.
The Bulletin was first introduced in March, 2022. These guidelines mandated financial firms to record crypto reserves as liabilities on their balance sheets.
Congressman Mike Flood, who prepared and introduced this resolution and noted that SAB 121 did not give a fair opportunity to banking enterprises that aimed to offer crypto custodial services. Therefore, firms that had added cryptocurrencies had to declare them as off-balance sheet holdings.
New Crypto Congress Resolution
Legislators have noted that banking firms have been keeping securities and digital assets such as Bitcoin as off-balance sheet products. However, the impact of the allowance of treating digital assets reserves as on-balance products are sizable.
In accordance with SAB 121, if banks proceeded to indicate digital assets as on-balance sheet reserves it can have a visible change in regulatory obligations such as capital and liquidity implications.
This resolution was introduced on 1st February by Rep. Flood and Rep. Wiley Nickel. The congressmen claimed that SAB 121 exceeded the scope of accounting bulletin and it was set to become a de facto law. Their statement further took note of the bipartisan agreement regarding SAB 121 in that it obstructs customer protection and open digital assets to vulnerabilities.
At the time of publication, the resolution is still in the process of passing. It needs more votes in the House and Senate to overturn SAB 121. The crypto Congress representatives namely Rep. Tom Emmer have noted that SAB 121 is illegal and indicates Gary Gensler’s prejudice against cryptocurrency industry. Emmer noted that SAB 121 was avoidable and concentrates additional risk in the crypto sector.
Anti-Crypto Section of Congress
Congress representative, Maxine Waters is one of the lawmakers who have voted against this resolution. She claimed that SAB 121 delisting was a sardonic move from for-crypto politicians. She further stated that the crypto sector often talks about the lack of regulatory clarity for cryptocurrencies.
However, the resolution against SAB 121 is going to bar SEC officials from introducing regulations regarding cryptocurrencies.
Meanwhile, Cointelegraph analysts opine that SEC cannot enforce SABs as compliance regulations. Instead, it is applicable as non-binding regulations that SEC officials introduce to provide clarification regarding consumer fund management for crypto custodians. At the same time, SABs are not subjected to public feedback or commentary duration like other formal regulations.
On the other hand, CFTC recently expressed reservations regarding a probable regulatory strife about ETH custody. The issue took shape after SEC-regulated firm Prometheum applied to become an ETH custodian.
CFTC chairperson Rostin Behnam emphasized on approving the Financial Innovation and Technology For 21st Century Act (FIT Act) during the House Committee on Agriculture hearing.
For context, it is important to note that FIT Act standardizes regulatory oversight of agencies such as CFTC and SEC over stablecoin issuers, crypto taxation, and consumer protection laws. In the same vein, Treasury Secretary, Janet Yellen also seconded stablecoin regulations.
She cited concerns such as price volatility and negative capital market impact. She also asked Congress to introduce legislation to mitigate risks and establish universal regulations to change the design and structure of the cryptocurrency industry.
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