U.S. lawmakers argue SEC accounting policy places crypto customers at risk

Two United States lawmakers have criticized crypto accounting pointers outlined by the securities regulator, arguing it places crypto customers at higher risk of loss.

The pointers got here from the United States Securities and Exchange Commission (SEC), which grew to become efficient in April final yr.

The pointers ask monetary corporations holding crypto for customers to acknowledge all digital property they don’t management as a legal responsibility. It additionally states that digital property needs to be backed by a safeguarding asset.

Crypto corporations should present liabilities equal to ALL buyer crypto property, based on SEC’s new rule SAB 121 issued in March 2022.@coinbase complied for his or her Q2 submitting and now exhibits an $88B “buyer crypto liabilities” merchandise. https://t.co/59029Pr2LE

— Cory Swan.com #Bitcoin WORKS (@coryklippsten) August 15, 2022

However, Senator Cynthia Lummis and Representative Patrick McHenry argued on Mar. 2 that these pointers will “likely” discourage regulated entities from participating in digital asset custody, which is the alternative impact of what the regulator needs to be doing. 

In a letter to rating people from the Federal Reserve System, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation  (FDIC) and the National Credit Union Administration, the lawmakers argued that whereas Staff Accounting Bulletin (SAB) 121 was meant to supply readability on accounting remedy for digital property, it carried adverse negative effects, claiming:

“SAB 121 places customer assets at greater risk of loss if a custodian becomes insolvent or enters receivership, violating the SEC’s fundamental mission to protect customers.”

The lawmakers argue the impact of SAB 121 will likely be to “deny millions of Americans access to safe and secure custodial arrangements for digital assets.”

“In sum, the impact of SAB 121 is to disclaim hundreds of thousands of Americans entry to secure and safe custodial preparations for digital property.”

⬇️⬇️ My letter with @PatrickMcHenry right here:https://t.co/kEQKJMg4tC

— Senator Cynthia Lummis (@SenLummis) March 2, 2023

The lawmakers additionally disagreed with the “breadth of the ‘digital asset’ definition in SAB 121,” arguing that “a more nuanced hierarchy for this asset class which considers the opportunities and risks of digital assets with different functions is necessary.”

Related: SEC chair implies crypto exchanges may not be ‘qualified custodians’ as new rule is drafted

Lawmakers together with Lummis have kicked up a fuss over the SEC accounting bulletin previously.

Last yr, 5 Republican Senators, together with Lummis, despatched a letter to the SEC on Jun. 16, sharing their concern that the bulletin amounted to “regulation disguised as staff guidance” and didn’t adhere to the Administrative Procedure Act.

SEC commissioner Hester Peirce shared similar concerns on Mar. 31, quickly after the bulletin was launched, noting it was “the way the change is being made” relatively than the accounting willpower itself she took problem with, which she characterised as:

“Yet another manifestation of the Securities and Exchange Commission’s scattershot and inefficient approach to crypto.”