"Deposits should be treated as company liabilities" - U.S. House of Representatives passes SEC cryptocurrency accounting rules, industry pushes back

The U.S. House of Representatives passed a significant legislative resolution on Wednesday with a vote of 228 to 182, aimed at endorsing a controversial announcement from the Securities and Exchange Commission (SEC) for 2022. The announcement has sparked significant debate over accounting requirements for cryptocurrency custodians.

Controversy Surrounds "Custodial Accounting," Still Receives Bipartisan Support

The resolution garnered majority support from the Republican Party, with 21 Democrats voting across party lines in favor. The SEC's announcement has faced criticism for its stringent requirements, which compel companies holding customers' cryptocurrencies to list these assets as liabilities, a move many in the crypto industry fear could deter banks from entering the crypto custody market.

Lessons from FTX

Centralized exchanges are responsible for safeguarding users' substantial assets. However, the FTX incident serves as an example where if user assets do not count as liabilities to the company towards its users, in the event of a collapse, the company may not be held accountable for user assets. Therefore, the accounting bulletin primarily aims to emphasize the obligation of custodial entities to protect platform users' assets.

Chance of Presidential Veto

This measure is not yet set in stone and is currently being sent to the Senate. President Biden has indicated a possible veto, although the White House's concern is that weakening the SEC's regulatory authority over crypto assets could lead to "significant financial instability and market uncertainty."

Main Points of Debate in the House

During the debate in the House, Financial Services Committee Chairman Patrick McHenry, Republican from North Carolina, criticized the SEC's approach as overly burdensome, suggesting it could make the cost of financial institutions custodianship of customers' digital assets too high.

Meanwhile, the committee's lead Democrat Maxine Waters from California defended the SEC's guidance, arguing that these guidelines are crucial for ensuring transparency and preventing fraud in the crypto space.

When Will it Pass?

The resolution has now entered the Senate Banking Committee for further review. Supporters of the resolution hope for swift passage, emphasizing the need to protect consumers and streamline the process above partisan politics.