How does SAB 121, which has the House of Representatives and the president vetoing each other, affect crypto assets and businesses?

Original|Odaily

Author|jk

This week, the United States House of Representatives held a vote to overturn Biden's support for the SEC's cryptocurrency accounting policy SAB 121, but the vote was far from the two-thirds of the votes needed to overturn the president's decision.

Background: What's going on?

What is SAB 121 ?

Employee Accounting Bulletin 121 (SAB 121) is a ** guidance issued by the United States Securities and Exchange Commission (SEC) that requires companies holding cryptocurrencies to record these assets on their balance sheets and disclose the associated risks. The announcement applies to all SEC-regulated entities, particularly banks and financial institutions, and may cause them to face higher capital requirements, impacting their ability to provide cryptocurrency custody services.

The SEC said SAB 121 is a "non-binding employee guidance" designed to enhance investor disclosures.

So what happened after the SEC pitch?

Previously, in May, Nebraska Republican Rep. ·Mike Flood and Rep. Wiley Nickel, Democrat of North Carolina, · introduced resolutions in February to overturn the proclamation. **The House of Representatives voted 228-182 to overturn the SEC's SAB 121. A week later, the Senate passed the resolution by a vote of 60 to 38, but the decision was then vetoed by Biden. **The White House under his leadership said that by invoking the Congressional Review Act, lawmakers could "inappropriately limit the SEC's ability to ensure appropriate safeguards." ”

To overturn President Biden's veto, a two-thirds majority is needed in both houses of Congress, i.e., 67 of the 100 senators needed in the Senate and 290 in the House of Representatives. **Thursday's House vote did not meet this two-thirds majority threshold. **21 Democrats and 207 Republicans voted yes, while 183 Democrats and 1 Republican voted against.

**To summarize the plot line, it is that the SEC proposed SAB 121 → the House of Representatives voted to reject → the Senate voted to reject → Biden vetoed the veto of the Senate and the House of Representatives in favor of SAB 121 → The Senate and the House of Representatives are currently voting to try to reject Biden's veto, thereby banning SAB 121, but it has now failed in the House of Representatives. **

At present, in the context of this year's United States election, SAB 121 has actually become a litmus test and wrestling field for the attitude of presidential candidates and lawmakers from both parties towards the crypto industry. **

What is the legislative process like in United States?

1. Bill Proposal: First, the bill is introduced by members of the House of Representatives or Senate.
2. Committee Review: The bill is referred to the relevant committee for review, discussion, and amendment.
3. House Vote: After the committee passes, the bill is voted on in the House of Representatives as a whole. If it is supported by a simple majority (more than half), the bill passes.
4. Senate Vote: The bill is then sent to the Senate. If the Senate also passes by a simple majority, the bill is sent to the president for signature.
5. The President Signs or Vetoes: The President can choose to sign the bill into law, or veto the bill. If the president vetoes the bill, it cannot take effect immediately.
6. If the President vetoes: If the President vetoes a bill, it is returned to the House that introduced the bill (usually the House of Representatives) with reasons for the veto.
7. House Revote: The House of Representatives can conduct a revote on the president's veto. A two-thirds majority (290 votes, if all 435 members of the House of Representatives vote) is needed to override the president's veto.
8. Senate re-voting: If the House succeeds in overriding the president's veto, the bill is then sent to the Senate. If the Senate also passes with a two-thirds majority (67 votes, if all 100 senators vote), the bill will override the president's veto and become law.

**Currently, the resolution to overturn SAB 121 stops at step 7. **

What was the reaction of all parties after the vote failed?

SEC

According to The Block, an SEC spokesperson issued a statement in April, saying: "Time and time again, we've seen crypto companies fail and seen their customers wait in line in bankruptcy court, hoping to get what they think is rightfully theirs. We also see the risk to investors in the companies that hold these assets when they are hidden from the balance sheet. These disclosures provide investors with important insight into the level of risk taken by crypto custodians. ”**

The party that tried to overthrow SAB 121

Rep. ·Mike Flood, Republican of Nebraska, who introduced the resolution, said after losing the vote that he would continue to pursue other avenues to end SAB 121 so that the government would no longer hinder the future of digital finance. In front of the House of Representatives, Pink called SAB 121 "not a political issue, but a bad regulation," restricting banks' participation in digital asset custody, adding that the SEC exceeded its authority in defining bank custody policies.

· McHenry, a Republican of North Carolina and chairman of the House Financial Services Committee, condemned Biden's veto, saying the administration "would rather play politics and be on the side of power-hungry bureaucrats than the people of United States" and not allow the resolution to succeed. **

The United States Banking Association reiterated SAB 121's requirement for banks to include customer cryptocurrencies on their balance sheets, which effectively prevents banks from providing digital asset custody services on a large scale and limits banks' ability to adopt Bitcoin ETFs and tokenization.

According to Coindesk, "the president ignored bipartisan support in Congress to avoid embarrassment for his rebellious SEC chairman," said Cody Carbone, chief policy officer of the Digital Chamber of Commerce, which represents · Washington's cryptocurrency industry.

Update: The SEC may reach a consensus with the banking sector

Rep. Maxine ·Waters of California said the debate over the policy has become almost irrelevant this week as the SEC is negotiating "targeted modifications" with banking representatives and is "likely close to a deal." But she noted that "Republicans are still pushing for this crude and overly broad approach," which she believes weakens the role of regulators.

Odaily reported on the change today, specifically by allowing certain companies to be exempt from cryptocurrency accounting policy SAB 121.

**A person familiar with the matter at the SEC said SEC staff have begun issuing guidance that, under guidance issued two years ago, may not require liabilities to be reported on the balance sheet for certain arrangements. **

Several large banks, which began consulting with SEC staff in 2023, have been granted permission to circumvent balance sheet reporting, ensuring that their clients' assets are protected in the event of bankruptcy or failure. Other measures, such as internal safeguards designed to better protect these assets, will address the legal risks associated with emerging asset classes, the person said. It also said that the SEC believes that the guidance has worked and that the company has made adjustments to deal with the threat to investors posed by hacking and business failures.

The SEC's accounting stance is likely to expand the range of companies United States crypto holders can choose from to accommodate their growing portfolios. The banks allege that the accounting treatment effectively prevents them from offering crypto services because the larger balance sheet would trigger capital requirements set by the banking regulator instead of the SEC.

In a closed-door consultation with SEC staff, the bank successfully argued that wallets and spot bitcoin ETFs should be outside the scope of SAB 121, the sources said.

Aaron Jacob, head of accounting solutions at TaxBit, which provides crypto accounting products to exchanges and investors, said financial institutions are increasingly eager to get involved in the crypto industry, especially now that the SEC has approved spot bitcoin products.