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U.S. Lawmakers Challenge SEC's Crypto Policy

Published: Feb 02, 2024 | Last Updated: Feb 02, 2024
Howard Kane

U.S. legislators contest SEC's balance sheet rule for digital assets, citing overreach and innovation risks.

Recent developments in the U.S. financial regulatory landscape have sparked a debate over the treatment of cryptocurrencies on company balance sheets. A group of U.S. lawmakers is taking a stand against the Securities and Exchange Commission's (SEC) new crypto accounting policy, known as Staff Accounting Bulletin No. 121 (SAB 121), which has significant implications for companies holding digital assets on behalf of customers.

Understanding the SEC's Crypto Accounting Policy

The SEC's policy requires that companies holding customers' cryptocurrencies must reflect these assets on their balance sheets. This accounting treatment could lead to substantial capital requirements for these institutions, as they would need to hold capital against the risk of holding these digital assets. The policy aims to provide more transparency and investor protection, ensuring that the risks associated with holding cryptocurrencies are adequately disclosed.

Lawmakers Push Back

Senator Cynthia Lummis and Representatives French Hill, Warren Davidson, and Tom Emmer are spearheading the effort to overturn this SEC policy. They argue that the SEC did not follow the proper regulatory process when introducing SAB 121 and that the policy could stifle the burgeoning digital asset industry. By requiring companies to list cryptocurrencies on their balance sheets, the lawmakers contend that the SEC is overreaching its authority and potentially deterring institutions from offering crypto custody services.

Industry Support for the Repeal

The digital asset sector has expressed support for the lawmakers' resolutions to disapprove of the SEC's rule. Industry advocates argue that the policy could impose unnecessary burdens on companies and inhibit innovation in the crypto space. They fear that the additional capital requirements could make it less attractive for financial institutions to provide custody services for cryptocurrencies, which could hinder the growth of the industry.

Implications for the Future

The outcome of this legislative challenge could have far-reaching effects on the U.S. cryptocurrency landscape. If the lawmakers' efforts are successful, it could signal a more favorable regulatory environment for digital assets. However, if the SEC's policy is upheld, companies will need to adjust to the new accounting requirements, potentially reshaping how cryptocurrencies are held and managed by financial institutions.

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