WASHINGTON — Congress’ biggest proponents of cryptocurrencies are opposing a Securities and Exchange Commission bulletin that would affect how banks and financial institutions account for digital assets.
House Financial Services Committee Chairman Patrick McHenry, RN.C., and Senator Cynthia Lummis, R-Wyo., who are each working on legislation to regulate the cryptocurrency industry, said in a letter to the SEC on Thursday that they having “concern”. on a Staff Accounting Bulletin known as SAB 121.
It’s about how crypto platforms calculate risk. Crypto platforms usually do not take clients’ crypto assets into account when calculating how much risk their business is exposed to. SAB 121 basically says they must include those client assets in their risk assessments.
The SEC and lawmakers continue to struggle to effectively regulate cryptocurrencies and other digital assets, a topic made more pressing by the high-profile collapse of many major crypto platforms, including Celsius and FTX. Many customers have lost money or had their funds frozen as the platforms try to resolve their bankruptcy.
“A recent decision in Celsius bankruptcy, which classified all of Celsius customers as unsecured creditors, and therefore at the back of the line to recover their assets, highlights the legal risk of effectively forcibly holding customer assets in order to balance,” McHenry and Lummis wrote.
In January, the Biden administration called on Congress to “expand regulators’ powers to prevent misuse of clients’ assets — which harm investors and distort prices — and reduce conflicts of interest.”
The SEC, considered the most likely government agency to regulate digital assets, is wrestling with questions such as whether cryptocurrencies should be considered securities. SEC Chairman Gary Gensler has said he believes so.
How the SEC regulates cryptocurrencies will have major implications for customers and the many businesses that have grown rapidly around the crypto industry in recent years. The industry has also leaned into lobbying efforts.
SAB 121, issued by the SEC’s Office of the Chief Accountant last March, represents the first time digital asset platforms have received instructions on how to account for the unstable values of cryptocurrencies.
Such bulletins from the SEC are relatively rare (only three have been issued as of 2019) and are issued by staff members to express their views on how companies should address certain accounting issues. In August, Gensler championed SAB 121 as a standard part of SEC operations.
McHenry and Lummis are concerned it would pose greater risks to consumers and increase compliance costs for financial institutions. Since the bulletin was issued, the SEC has pushed back from both banks and cryptocurrency companies.
“Since SAB 121 claims to require banks, credit unions and other financial institutions to effectively place digital assets on their balance sheets, this would create a huge capital burden. This, in turn, is likely to prevent these prudentially regulated entities from engaging in digital asset custody,” they wrote.
In January, McHenry created the first congressional panel to focus solely on cryptocurrency and digital assets. The financial services subcommittee on digital assets, financial technology and inclusion will be chaired by another leading House Republican on the issue, French Hill of Arkansas.
Lummis, who proposed comprehensive legislation to regulate the crypto industry in June with Senator Kirsten Gillibrand, DN.Y., plans to reintroduce the Responsible Financial Innovation Act in April, a spokesperson said.
This article was originally published on NBCNews.com