Congressman Ritchie Torres Accuses SEC of Misusing SAB 121 to Undermine Crypto Innovation

Overview:

U.S. Congressman Ritchie Torres has criticized the Securities and Exchange Commission (SEC) for its alleged misuse of the Staff Accounting Bulletin 121 (SAB 121) rule, claiming it undermines established accounting principles and stifles innovation in the cryptocurrency sector.

Background on SAB 121:

SAB 121, introduced by the SEC in March 2022, requires crypto companies to classify customer cryptocurrency holdings as liabilities on their balance sheets. This controversial rule has drawn criticism from the crypto industry, which argues it imposes undue regulatory burdens that could hinder growth and experimentation in blockchain technology.

SEC’s Pressure on Crypto Custodians:

The SEC has intensified scrutiny on banks offering crypto custody services, mandating that they disclose their crypto-related assets as liabilities. Congressman Torres argues that this approach contradicts generally accepted accounting principles (GAAP) and is detrimental to innovation. He remarked, “There is something profoundly un-American about banning innovation,” highlighting his concerns about the regulatory environment stifling technological advancement.

Regulatory Crackdown:

Torres’s statements come amid a broader trend of regulatory pressure from the SEC and the Federal Reserve, particularly targeting banks with connections to crypto firms. Recent events, such as the bankruptcy of Silvergate Bank, have raised alarms about the aggressive tactics employed by regulators under what some refer to as Operation Choke Point 2.0. This initiative has reportedly led to significant reductions in crypto-related deposits, further destabilizing affected institutions.

A Changing Landscape for Crypto Custody:

Despite these challenges, major financial institutions are still entering the crypto custody market. Recently, BNY Mellon received approval to offer these services, reportedly obtaining an exemption from the SAB 121 requirements. This development may signal a shift in the regulatory landscape, potentially paving the way for more banks to engage in crypto custody without facing the same hurdles.

Conclusion:

Congressman Ritchie Torres's condemnation of the SEC's use of SAB 121 reflects a growing frustration within the crypto industry regarding regulatory practices that seem to hinder innovation. As the regulatory environment continues to evolve, it remains to be seen how these developments will affect the future of crypto custody services and the broader financial landscape.