Senate Set to Overturn Controversial Crypto Rule with Bipartisan Support

The U.S. Senate is poised to vote on Joint Resolution 109 on Thursday, with insiders predicting enough Democratic support to pass the resolution, which aims to nullify the SEC’s Staff Accounting Bulletin (SAB) 121. This measure, introduced in March 2022 and enacted the next month, requires digital asset custodians to list both liabilities and corresponding assets for custodied cryptocurrencies on their balance sheets. This rule aims to address the risks and uncertainties of safeguarding crypto assets.

The resolution already cleared the House of Representatives last week with bipartisan backing, including 21 Democratic votes. In the Senate, a simple majority is required, meaning at least two Democrats must join all Republican Senators for it to pass. Several Democratic senators reportedly plan to support the resolution.

Sen. Kirsten Gillibrand, D-N.Y., a strong crypto supporter, confirmed her vote for the resolution. She criticized SAB 121 for being issued without proper consultation or public comment and for deviating from established accounting standards. Gillibrand argued it forces financial institutions to treat customers’ digital assets as their own, reducing consumer protection in bankruptcies.

Last year, Gillibrand co-signed a bipartisan letter with Sen. Cynthia Lummis, R-Wyo., and House Financial Services Committee Chair Patrick McHenry, R-N.C., opposing SAB 121. While Reps. Ritchie Torres, D-N.Y., and Wiley Nickel, D-N.C., also signed, Gillibrand was the sole Senate Democrat involved. Nickel recently urged SEC Chair Gary Gensler to withdraw SAB 121, arguing it politicizes the issue.

The White House has stated that President Biden would veto the legislation if it reaches his desk. Gensler defended SAB 121, saying it aligns with bankruptcy court precedents on whether liabilities should be on balance sheets. The SEC did not respond to requests for comment. As the Senate prepares to vote, the decision could significantly impact the regulation of digital assets, highlighting ongoing debates over the best regulatory approach.