Two U.S. lawmakers have slammed the financial regulatory, the Security and Exchange Commission, for their crypto accounting policies, saying that such policies exposed customers’ assets to greater risk of loss.
U.S. Rep. Patrick McHenry (R-N.C.), the House Financial Services Committee chairman, and Sen. Cynthia Lummis (R-Wyo.), who has authored crypto legislation, sent a letter to banking agencies. They stated in the letter that Staff Accounting Bulletin 121 (“SAB 121”), introduced on April 11, 2021, doesn’t align with the SEC’s mission to protect customers.
Lawmakers cited their concern over customer assets if the custodian becomes insolvent under SEC policy. The policy states that “companies recognize a liability and a corresponding offset on their balance sheets, measured at the fair value of the customer custodial digital assets.”
To prove the point, they have pointed out the recent event in which all of Celsius’s all customers became unsecured creditors after it filed for bankruptcy. It ultimately forces “customer custodial assets to be placed on a balance.”
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Furthermore, Lawmakers also noted that the SEC is shifting away from traditional custodial practices by referring to the testimony of Federal Reserve Board Chair Powell, which he gave before the Senate Banking Committee on June 22, 2022.
Apart from this, the lawmakers asked for a broader explanation of virtual assets as the definition of “digital assets” in SAB 121 doesn’t define the type or purpose of assets, like whether it’s a stablecoin, cryptocurrency, or any other form of digital currency.
Also, the letter says that the SAB121 prevents regulated entities from engaging in digital custody, instead “encouraging prudentially regulated financial institutions, like banks and credit unions, to provide digital asset services precisely”.
The letter completely exposes the regulatory authority’s overwhelming indulgence in enforcement actions on crypto firms. Lately, many crypto firms have mentioned that the U.S. regulatory has no clear framework to operate crypto businesses.
