Biden exercises presidential veto power! Prevents Congress from expanding SEC oversight: SEC insists that adhering to SAB 121 accounting principles can protect investors

President Biden issued a letter to the House of Representatives on May 31, 2024, announcing his veto of the Republican-led H.J.Res. 109 resolution. The resolution sought to overturn Accounting Bulletin No. 121 SAB 121 issued by the U.S. Securities and Exchange Commission (SEC), which outlines accounting responsibilities for companies holding custody of crypto assets. Biden's veto underscores his commitment to consumer and investor protection.

"Custody Should Be Treated as Company Liabilities" - U.S. House Passes SEC Crypto Accounting Rule SAB 121, Industry Pushes Back

What is SAB 121? The Importance of SAB 121

SAB 121, also known as Staff Accounting Bulletin No. 121 issued by the U.S. Securities and Exchange Commission (SEC) in March 2022, aims to provide guidance on accounting and disclosure obligations for entities that custody crypto assets for their platform users. The bulletin highlights key considerations in financial reporting due to the unique risks associated with crypto assets, such as technological, legal, and regulatory uncertainties.

According to SAB 121, entities with custody responsibilities for crypto assets must recognize custody obligations and the corresponding assets on their balance sheets and measure them at fair value. This requirement applies whether custody activities are performed directly by the entity or through agents such as sub-custodians.

In essence, crypto exchanges that custody user assets, such as FTX and Coinbase, should include user assets as liabilities in their financial reports. Failure to do so, as seen in the case of FTX, where user crypto assets were not considered liabilities by the company, could result in weaker creditor rights compared to other priority creditors.

Congressional Expansion of Powers, Biden Stands Firm

The Republican-led resolution H.J.Res. 109 aims to use the Congressional Review Act to limit the SEC's ability to establish appropriate safeguards and address future issues. President Biden believes that reversing SEC rulings in this manner could weaken the SEC's authority in accounting practices, leading to negative impacts on market stability and investor protection.

Biden Administration: Prioritizing Consumer Safety

President Biden has made it clear that his administration will not support any measures that jeopardize consumer and investor welfare. He emphasizes that adequate safeguards are essential for harnessing the potential benefits and opportunities brought by innovative uses of crypto assets. The Biden administration aims to collaborate with Congress to ensure the establishment of a comprehensive and balanced regulatory framework for digital assets based on existing authorities, promoting responsible digital asset and payment innovation, and strengthening the U.S.'s leadership position in the global financial system.