The Senate, in a bipartisan vote, decided to overturn the SEC's restrictive rule on digital asset custody, despite concerns from President Biden and the SEC about investor protection and market stability.

Bipartisan Vote Overturns SEC’s Bulletin

The Senate, with bipartisan support, voted to overturn the SEC's Staff Accounting Bulletin (SAB) No. 121, which had imposed strict limitations on financial institutions' custody of digital assets like Bitcoin. The resolution, H.J.Res. 109, which aims to dismantle SAB 121, had already passed the House and received significant Senate support. Under the Congressional Review Act, this resolution intends to allow regulated financial firms to enter the crypto custody space. The 60-38 vote marks a significant shift in cryptocurrency regulation.

Concerns and Contention

SAB 121 had previously restricted financial firms from offering custodial services for digital assets and is now under review. President Biden expressed concerns that removing the rule could undermine efforts to protect investors in crypto markets and the broader financial system. The SEC shared these concerns, with a spokesperson noting that SAB 121, although non-binding, enhances important disclosures to investors. The SEC highlighted instances of crypto firms failing, leaving customers to seek recovery in bankruptcy court.

Bipartisan Supporters of the Resolution

Supporters of overturning SAB 121 argue it is crucial for consumer protection, especially given the SEC's recent approvals of spot Bitcoin ETFs that rely on institutional custody. The resolution aims to remove barriers and enable more regulated institutions to offer custody services, addressing centralization concerns. Despite some Democratic dissent, the resolution received substantial bipartisan support, with a dozen Democrats joining Republicans in favor. Senate Majority Leader Chuck Schumer and other Democratic leaders opposed the SEC's stance, aligning with the resolution's goals.
Criticism of SAB 121

Critics argue that SAB 121 unnecessarily restricts financial institutions, preventing them from meeting the growing demand for Bitcoin services. They assert that regulated entities, with their robust compliance frameworks and security measures, are capable of managing the associated risks. Senator Cynthia Lummis, a prominent Bitcoin advocate, supported overturning SAB 121, stating that it is a rule under the Administrative Procedure Act, disguised as accounting guidance, and was published without the majority approval of the SEC commission.