House set to vote on nullifying SEC crypto custody guidance for banks

WASHINGTON — House lawmakers are gearing up for a vote on whether to overturn a Securities and Exchange Commission staff bulletin that banks complain would undercut their ability to custody crypto assets for clients. 

Republicans on the House Financial Services Committee have already passed a Congressional Review Act measure on Staff Accounting Bulletin 121, which requires companies custodying cryptocurrencies to account for them as liabilities on their balance sheets.

Banks argue that the guidance would effectively cut them out of the crypto custody business. And they say it has already thrown a wrench in the plans of at least one bank, Bank of New York Mellon, to open that line of business. 

The full House plans to vote Wednesday on the measure. Republicans fought to get the measure recognized, since a staff accounting bulletin is not typically the target of a Congressional Review Act resolution. The Government Accountability Office said in an October report that the CRA could apply in this situation. 

Reps. Wiley Nickel, D-N.C., and Mike Flood, R-Neb., introduced the resolution in the House, while Sen. Cynthia Lummis, R-Wyo., has companion legislation in the Senate. 

On Monday evening, lawmakers from both sides of the aisle argued about the resolution on the House floor. 

Defeating certain CRA resolutions by House Republicans, including those that target so-called "junk fee" actions by the Consumer Financial Protection Bureau, has been a White House priority. That isn't the case with the effort to overturn Staff Accounting Bulletin 121.

While the resolution still has a long road to President Joe Biden's desk, it does have a Democratic co-sponsor, and is among the more likely CRA resolutions to get enacted. Still, it faces opposition from some congressional Democrats.

"Why are my colleagues on the other side of the aisle attempting to overturn this important guidance?" said Rep. Maxine Waters, D-Calif., on the House floor on Monday. "It has to do with one particular special interest group — large custody banks — who have raised a narrow concern that the accounting guidance in SAB 121 may conflict with how prudentially regulated custody banks account for their customers' assets." 

Waters said that overturning the bulletin, which would prevent the SEC from pursuing significantly similar guidance or rulemaking in the future, would give the crypto industry less clarity from the agency, which would be harmful to the industry and to consumers.

"If the SEC were to pull back in this regard, it would be particularly harmful to smaller companies with less resources dedicated to compliance, and could result in more enforcement actions as companies struggle to understand what they should be doing to comply with SEC rules," she said. 

Flood, in his remarks on the House floor, noted that the SEC did not consult at least some bank regulators before the agency released its bulletin.

American Banker first reported that Federal Reserve Chair Jerome Powell and acting Comptroller of the Currency Michael Hsu expressed misgivings about the bulletin in a February letter to House Republicans — a rare scuffle between Biden administration agencies, which increased the CRA resolution's chances of passing. 

"The fact is the SEC made a mistake," Flood said. "They did not consult the banking regulators, sought to go around Congress, and deprived Americans of a highly regulated avenue to hold digital assets."