Senate’s Victory Over SEC Threatened by Potential Biden Veto

• The SEC’s SAB 121 rule risks being overturned as the US Senate votes against it.
• The commission is seeking tighter oversight of crypto custody.
• The SEC’s actions have drawn the support of US President Biden.

Over the last months, the United States Securities and Exchange Commission (SEC) has been at the center of controversies, marked by the growing scrutiny of its ‘hostile’ actions against the crypto industry by lawmakers. In February 2024, the SEC was again thrust into the spotlight of scrutiny following its proposal of crypto custody rule SAB 121 , which would require firms dealing with crypto assets to follow new accounting practices.

In a further check on the SEC’s actions, the U.S. Senate has voted to reject the proposal.

Senate’s SEC Crypto Custody Win Faces Biden

On Thursday, May 17, the SEC’s staff accounting SAB 121 rule faced a vote in the U.S. Senate, resulting in a 60-38 victory to overturn it. This victory comes after the opposition to the SEC’s crypto custody rule in the US House on February 3, 2024, spearheaded by Senator Cynthia Lummis and Representatives Wiley Nickel and Mike Flood.

The win overturns the SEC’s efforts to mandate that firms holding customer crypto assets record them as liabilities on their balance sheets. Lawmakers described this move as burdening financial institutions and stifling innovation in the crypto sector.

However, the Senate’s victory may be short-lived. Since the vote did not achieve enough to override a potential presidential veto, the industry faces the risk of a presidential override, allowing the vote to be nullified. According to a pro-SEC document from May 8, the US administration views the commission’s actions as necessary to “protect investors in crypto-asset markets and to safeguard the broader financial system.”

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The document further stressed that SAB 121 was issued in response to demonstrated risks that have caused substantial losses to investors in the industry, adding that U.S president Biden supports the SEC’s actions.

“If the President were presented with H.J. Res. 109, he would veto it.”

Despite the administrative support for the SEC, the commission continues to face scrutiny for its overreach.

SEC Draws Flak for Fight Against Crypto

Under the leadership of Chair Gary Gensler , the SEC has been accused of attempting to dwarf the crypto industry and broader digital innovation.

The accusations stem from a series of legal actions initiated by the SEC against service providers, particularly exchanges, within the ecosystem, many of which have resulted in prolonged disputes and repercussions. From full-blown lawsuits to Wells notices, hardly any firms have been spared, as evidenced by clashes with Binance , Coinbase , Kraken , and Uniswap , to name a few.

Critics have also pointed out the SEC’s misalignment of priorities , focusing on trivial matters rather than providing essential guidance. The commission has been accused of employing a “regulation by enforcement approach”, while failing to crackdown on important cases such as the FTX fraud involving Sam Bankman-Fried .

Compounding its reputation troubles was misconduct in its case against crypto firm DebtBox. In December 2023, the SEC admitted to making “materially false and misleading representations” against the company, again drawing scrutiny to its actions. Five senate officials tackled the SEC and its proceedings, criticizing its unethical and unprofessional approach to enforcement.

The SEC has also been accused of constituting a financial drain on the United States, echoed by calls for a salary cut for Chair Gensler from his current estimated $300,000 annual salary to just $1 and a complete ousting from his position.

On the Flipside

• Besides President Biden, the SEC has also received support from certain policymakers.
• The SEC is still entangled in a years-long legal battle against Ripple , drawing severe backlash.
• SEC chair Gary Gensler has recently argued that the commission’s actions align with the law.

Why This Matters

The Senates’ landslide vote against the SEC’s crypto custody rule, SAB 121, marks a win against the Commission’s actions and could establish a precedent for future regulatory standards. However, its implementation will hinge on the scrutiny of President Biden’s administration.

Discover more of the SEC’s efforts to tighten oversight on the industry besides the crypto custody rule:
How the SEC’s “Dealer” Rule Changes Crypto Oversight  

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