The Joe Biden administration recently strongly opposed H.J. Res. 109, a bill to reverse the Securities and Exchange Commission’s (SEC) Staff Accounting Bulletin (SAB) No. 121. This bulletin imposes stringent requirements on financial institutions seeking to hold digital assets like Bitcoin. The proposed legislation will lift these restrictions, enabling banks and other financial entities to act as custodians for cryptocurrencies.

The President’s Executive Office clarified its position, stating that the President would veto the bill if it reached his desk. Their opposition concerns the SEC’s ability to protect investors in the cryptocurrency market and maintain the financial system’s stability. Their statement emphasized that loosening these regulations could disrupt the SEC’s oversight, potentially putting investors at risk.

Congressional and industry responses to H.J. Res. 109

The bill’s primary supporters in Congress, led by House Financial Services Committee Chairman Patrick McHenry, argue that SAB 121 represents regulatory overreach by the SEC.

McHenry noted that the bulletin imposes undue guidance on how financial institutions should manage digital assets. He emphasized that financial entities need regulatory flexibility to safeguard Americans’ digital assets effectively.

Congressman French Hill echoed this sentiment, criticizing the requirement for financial institutions to hold reserves against assets in custody, arguing that such measures are not standard in financial services.

Hill stated that H.J. Res. 109 would better align regulations with existing financial practices and reduce unnecessary burdens.

Industry representatives also expressed concerns about the current regulatory landscape. Cody Carbone, Chief Policy Officer of The Chamber of Digital Commerce, argued that SAB 121 effectively prevents trusted custodians from managing digital assets. He noted that this restriction could limit institutional involvement, ultimately reducing market efficiency.

Moreover, Congressmen Mike Flood and Wiley Nickel expressed their concerns in a bipartisan op-ed. They emphasized the importance of highly regulated custodians to mitigate risks associated with lacking custodian options for spot Bitcoin ETFs. Their argument highlighted the potential for concentration risks if the regulatory environment continues to restrict institutional participation.

Challenges

Despite bipartisan support, H.J. Res. 109 faces significant challenges due to the Joe Biden administration’s firm opposition. A presidential veto would hinder the bill’s progress, impacting financial institutions’ ability to engage with digital assets. Policymakers and stakeholders remain divided on regulating the growing cryptocurrency sector while ensuring investor protection and systemic stability.

The proposed legislation underscores the complexities of digital asset regulation in the United States. While bill supporters advocate for a more open framework, the administration maintains that investor safety and market integrity must not be compromised. The resolution of this legislative debate will likely shape future regulatory approaches, impacting financial firms, investors, and the broader digital asset ecosystem.

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