The Securities and Exchange Commission (SEC) has outlined conditions under which certain companies can be exempt from the controversial Staff Accounting Bulletin (SAB) 121. This regulation mandates that banks include cryptocurrencies on their balance sheets when storing them, posing significant financial challenges for these institutions. Recently, Paul Munter, the SEC’s Chief Accountant, clarified the exemptions, suggesting that banks could collaborate with state regulators to ensure customer asset recovery during bankruptcy, thus qualifying for the exemption.
How Can Exemptions Be Secured?
Munter described pathways for various financial entities to navigate these exemptions. For banks, establishing partnerships with state authorities could provide a safer avenue for asset recovery in bankruptcy scenarios, leading to exemption from SAB 121. Alternatively, brokers may bypass the rule by directly interacting with clients while avoiding possession of cryptographic keys.
Political Critique on SEC Approach
Senator Cynthia Lummis voiced her disapproval of how the SEC is enacting SAB 121, criticizing the lack of Congressional involvement. She claimed that the SEC’s approach is in conflict with the Congressional Review Act. Despite a proposal to address these issues, President Biden rejected it, citing potential risks to consumer and investor security.
Industry Concerns and Insights
– TaxBit CEO Aaron Jacob criticized the guidance, arguing that it introduces confusion and questions the rule’s necessity.
– Galaxy’s research head, Alex Thorn, viewed the exemptions as a partial retreat by the SEC, indicating a shift in focus away from cryptocurrency firms to conventional banks.
– Crypto trade groups expressed deep concerns, with representatives highlighting how SAB 121 restricts secure digital asset holding options and disrupts banking operations.
Reactions across the crypto industry reflect a broader concern about the implications of SAB 121. Patrick Kirby from a trade association pointed out that these regulations limit consumer choices for secure digital asset management. Meanwhile, Taylor Barr noted the unsustainability of SAB 121, emphasizing the urgent need for regulatory reform within the crypto sector.
