The U.S. House of Representatives fails to overturn Biden's veto of SAB 121, while the SEC has long opened a backdoor for banks?

The U.S. House of Representatives yesterday, on the 11th, voted and failed to reach the threshold required to overturn the President's veto of "Statement of Accounting Bulletin No. 121 SAB 121." In other words, this indirectly prevents the announcement that would have allowed financial institutions to offer digital asset custody services, exposing the public to risks from less regulated platforms, from taking effect in the future.

What is SAB 121? What is its impact?

In March 2022, the SEC's Office of the Chief Accountant issued Staff Accounting Bulletin No. 121 (SAB 121) to address the risks faced by public trading companies in safeguarding digital assets for their clients. The bulletin requires companies to record the fair value of the digital assets they custody on their balance sheets.

However, the controversial aspect of this bulletin is that large banks may choose not to participate in custody services due to increased capital, liquidity, and other auditing requirements. This indirectly forces the public to choose unregulated cryptocurrency platforms, posing greater risks to investors and the broader financial system.

"Custody should be considered a liability" - US House passes SEC cryptocurrency accounting rule SAB 121, industry pushes back

In response, two Republican and Democratic members of Congress introduced a resolution in February to "overturn SAB 121," which quickly passed both chambers but was ultimately vetoed by President Biden, stating it would undermine the SEC's efforts to protect investors and the financial system:

Appropriate safeguards are essential for realizing the potential benefits and opportunities of innovative uses of crypto assets.

Biden exercises veto power! Prevents Congress from interfering with SEC: Upholds SAB 121 accounting principles to protect investors

House fails to override Biden's veto of SAB 121

On Thursday, the House failed to overturn President Biden's veto of the "Congressional Resolution to Overturn SAB 121" with a vote of 228 to 184 results.

Specifically, the majority of Republicans voted in favor, while nearly all Democrats voted against, but the outcome did not meet the two-thirds threshold required to overturn the presidential veto.

Views supporting the overturning of SAB 121:

Chairman of the Financial Services Committee, Republican Patrick McHenry expressed regret over the failure to overturn SAB 121, stating that the resolution was the "first-ever consensus on digital asset-related legislation" in history:

The government would rather play politics, stand with power-hungry bureaucrats, than support the safe use of new technologies by the American people.

American Bankers Association: Urge Biden to revoke SAB 121, do not limit investors to poorly regulated crypto platforms

Views opposing the overturning of SAB 121:

Democratic member of the committee, Maxine Waters, criticized the move to overturn SAB 121, stating it was simply dissatisfaction from the crypto industry with regulatory outcomes, and revealed:

Some large custodian banks are working with the SEC to finalize details to ensure these well-regulated entities can provide digital asset custody services in accordance with SAB 121.

Has the SEC already opened backdoors for banks?

Interestingly, Waters' statement seems to be confirmed as reported by Bloomberg Tax, where financial institutions continue to consult with the SEC, and some banks' proposed business practices have been approved by the SEC, allowing them to bypass the restrictions of SAB 121.

An insider familiar with regulatory practices at the SEC claimed that since the release of SAB 121, many large banks have been seeking advice from the SEC to develop new policies related to cryptocurrencies:

Starting in 2023, several large banks have negotiated with the SEC and obtained approval to not report cryptocurrencies on their balance sheets.

Can exemption be granted as long as funds are available in case of bankruptcy?

Furthermore, the insider revealed the methods institutions use to be exempt from SAB 121:

As long as companies can prove that certain procedures or technologies they have implemented allow customers to retrieve their cryptocurrencies in the event of a hack or corporate bankruptcy, similar to other assets, they do not need to comply with SAB 121.

It was also noted that many companies have made various changes to protect assets, including stricter accounting audits, asset protection, and controlling user asset permissions.