House Resolution to Overturn Controversial SEC Rule Likely to Pass in Senate: Sources

A House proposal to revoke the U.S. Securities and Exchange Commission's Staff Accounting Bulletin 121 is likely to pass through the Senate in a vote on Thursday, multiple people familiar with the situation told CoinDesk.

A Senate source familiar with the situation told CoinDesk they expected a floor vote on Thursday in the late morning, and the bill was in a "good position" for passage.

"There'll likely be more than one Democrat voting for it," the individual said.

In a statement, Sen. Kirsten Gillibrand (D-N.Y.) said she would support the resolution to overturn the bulletin, adding it "has significant procedural and policy issues."

"The rule was issued without proper consultation with the respective regulatory agencies or Congress and without going thru a proper notice and comment period," she said. "More importantly, it imposes an accounting approach that deviates from established standards, forcing financial institutions to count their customers’ digital assets as their own. This will limit options for consumers and leave them with less, not more consumer protection in cases of bankruptcy."

SAB 121 intended to explain how businesses should account for crypto assets, saying they should hold these assets on their own balance sheets. Critics have argued the bulletin deters major custodians and other companies from holding crypto for customers at all. Last week, the House of Representatives voted to advance the House resolution that rejected the guidance.

If signed by U.S. President Joe Biden, the House resolution would disapprove of the bulletin and block the SEC from issuing any similar guidance in the future. The White House threatened to veto the resolution should it advance out of the Senate as well, saying it "reflects considered SEC staff views."

"It could also inappropriately constrain the SEC’s ability to ensure appropriate guardrails and address future issues related to crypto-assets including financial stability," the veto notice said.

Despite the veto threat, 21 House Democrats and the vast majority of House Republicans voted to advance the resolution.

In a statement, the resolution's sponsor, Rep. Mike Flood (R-Neb.) said, "We're hopeful that it passes the Senate this week, and I think it's getting the SEC's attention that we're serious."

The resolution's other sponsor, Rep. Wiley Nickel (D-N.C.), wrote a letter to SEC Chair Gary Gensler earlier on Wednesday, which said the lawmaker had asked for time to discuss the bulletin with Gensler's office but had not received any response.

"I strongly encourage you to withdraw SAB121 to protect investors and the financial system, bolster American competitiveness, and respect Congress’s role in the administrative rulemaking process," the letter said. "Acting now to withdraw SAB121, before it passes in the Senate, to allow for the custodial banking of digital assets would be a positive step toward a balanced regulatory approach to cryptocurrency."

Ron Hammond, the director of government relations with the Blockchain Association, said in a statement that the group expected bipartisan support for the resolution.

"However, the threat of a presidential veto remains," said Hammond. "We encourage the veto to be reconsidered, allowing this harmful, anti-crypto provision to be struck down."

UPDATE (May 15, 2024, 19:30 UTC): Adds statement from Sen. Gillibrand and letter from Rep. Nickel.