US lawmaker calls on SEC to repeal crypto custody rule ahead of Senate vote

US lawmaker Wiley Nickel has urged the Gary Gensler-led Securities and Exchange Commission (SEC) to repeal the Staff Accounting Bulletin 121 (SAB 121) before the impending Senate vote.

SAB 121 requires financial institutions custodying crypto to hold these assets on their balance sheets. Several stakeholders have spoken against the regulation, arguing that it hampers the sector’s growth.

However, President Joe Biden said he would veto any attempt to overturn SAB 121. His administration said it “strongly opposes” the change because it would interfere with the SEC’s efforts to protect crypto investors.

Nonetheless, a non-partisan House of Representatives passed the resolution that rejected the contentious regulation last week.

Withdrawing SAB 121

In a May 15 letter to the SEC Chair, Nickel advised that withdrawing the directive would be prudent as bipartisan support swells ahead of the Senate decision. He said:

“It’s the mission of the SEC to protect investors. However, SAB121 does just the opposite by preventing highly regulated American banks from placing digital assets in their custody at scale.”

The lawmaker pointed out that the resolution had pushed US investors towards offshore custody alternatives and hindered banks from participating in custody services for newly introduced Bitcoin ETFs. This, he cautioned, poses a potential concentration risk to the financial system as most issuers rely on a single non-bank entity.

Moreover, Wiley criticized the SEC for bypassing the rulemaking process in issuing SAB 121, contending that the Staff Accounting Bulletin is intended to clarify existing policies, not create new ones.

He added:

“The SEC’s open hostility toward the digital assets industry isn’t serving President Biden’s best interests. The SEC is turning cryptocurrency regulation into a political football an forcing President Biden to choose sides on an issues that matters to many Americans.”

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