Biden Administration Stands Firm Against Congressional Move to Overturn SEC's Crypto Custody Rules

In a decisive move, the Biden Administration has expressed its firm opposition to H.J. Res. 109, a resolution that seeks to overturn the Securities and Exchange Commission's (SEC) Staff Accounting Bulletin No. 121 (SAB 121). This bulletin imposes significant restrictions on the way financial firms can handle the custody of Bitcoin and other digital assets.

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The Battle Over Bitcoin Custody

Since its implementation, SAB 121 has been controversial. It mandates that financial institutions holding digital assets for customers include these assets on their balance sheets. This requirement subjects them to stringent capital and liquidity costs under existing financial regulations, which many argue could stifle these institutions' operational capacity to handle digital assets effectively.

U.S. Congressman Patrick McHenry, Chairman of the House Financial Services Committee, criticized SAB 121 as a clear example of regulatory overreach under SEC Chair Gary Gensler's leadership. According to McHenry, this rule deviates significantly from traditional financial norms where banks do not have to hold reserves against custodial assets.

The opposition led by McHenry has culminated in H.J. Res. 109, which recently passed the House by a vote of 228 to 182. The resolution garners bipartisan support, with several lawmakers arguing that the SEC's approach is overly burdensome and out of step with the financial industry's standards.

However, President Biden has indicated a strong resistance to this legislative effort. In a formal statement, the President emphasized that overturning SAB 121 would undermine the SEC's ability to protect investors and maintain the integrity of the financial system amidst the complexities introduced by digital assets. Specifically, Biden highlighted the risks of technological, legal, and regulatory uncertainties that could potentially lead to consumer losses.

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Implications for Business Leaders and the Financial Sector

For CEOs and CFOs, the ongoing debate over SAB 121 is a crucial indicator of the evolving regulatory landscape for digital assets. The administration's stance suggests a cautious regulatory approach to the integration of Bitcoin into traditional financial systems, emphasizing stability and investor protection.

As the resolution moves to the Senate, businesses and financial institutions must stay prepared to adapt to potential changes in the regulatory framework governing Bitcoin and other digital assets. Sovreign remains committed to providing businesses with the insights and strategies needed to thrive in this dynamic sector, emphasizing the importance of proactive adaptation to regulatory trends

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