Biden Administration Set to Veto Attempt to Overturn SEC Crypto Regulations

The Biden administration is set to veto a resolution (H.J. Res. 109) aimed at overturning SEC's Staff Accounting Bulletin 121 (SAB 121), which regulates how banks can engage with cryptocurrencies. The government argued on May 8 that reversing these guidelines would compromise the SEC's efforts to ensure investor safety and financial stability.

SAB 121 has drawn criticism for imposing stringent conditions on banks dealing with cryptocurrencies, prompting the government to uphold the SEC’s decisions. They believe that the SEC issued these rules in response to real risks that have led to substantial losses for consumers, reflecting well-thought-out views from SEC staff.

Using the Congressional Review Act to challenge SAB 121, according to the administration, would improperly restrict the SEC’s ability to regulate the crypto market, potentially leading to financial instability and uncertainty. If Congress passes H.J. Res. 109, President Biden has pledged to veto it. The House of Representatives plans to vote on this resolution on May 8. Patrick McHenry, Chairman of the House Financial Services Committee, supports the resolution, denouncing SAB 121 as an excessive SEC overreach under Gary Gensler.

McHenry accuses the SEC of evading required public commenting and regulatory processes by labeling these rules as mere staff guidance. McHenry also argues that SAB 121 places undue burdens on banks that want to offer crypto custody services, possibly leaving consumer assets more vulnerable due to decreased bank participation. Representative Tom Emmer supports the resolution, initially sponsored by Congressman Mike Flood.

The financial industry has also opposed SAB 121, particularly concerning its implications for institutions holding customer cryptocurrencies on their balance sheets. The American Bankers Association (ABA) has highlighted the rule's challenges since its introduction in 2022, stating it practically bars banks from acting as custodians for spot Bitcoin ETFs due to the high reserve and capital requirements. The ABA has urged the SEC to amend rather than completely repeal SAB 121, suggesting a preference for modification over total revocation to ensure regulatory goals are met without overly burdensome requirements.