Congressmen Discuss House Vote To Reverse SEC Policy On Crypto Custody

Yesterday, the House of Representatives voted to pass House Joint Resolution 109 (H.J.Res. 109) that included 207 Republicans and 21 Democrats voting yes and 182 Democrats voting no. H.J.R. 109 would overturn an SEC accounting policy known as Staff Accounting Bulletin (SAB) 121 that many experts consider as having a deleterious effect on the willingness of banks to custody digital assets. Despite the White House issuing a policy statement stating that if H.J.R. 109 was presented to the President, he would veto it, an astonishing 21 Democrats still broke ranks to join with Republicans to pass the resolution and send it to the Senate for consideration.

I spoke with Representatives Mike Flood (R-NEB) and Wiley Nickel (D-N.C.), the co-sponsors of H.J.Res. 109, about the debate in the House yesterday, conversations with Nickel’s Democratic colleagues who publicly voted no on his measure but privately shared they felt conflicted about whether SAB 121 is the right policy for digital assets, and a message to the cryptocurrency industry to not leave the U.S. and give Congress a chance to get the policy right on digital assets.

Flood said a colleague told him this was the first time that digital assets and cryptocurrency has had a vote on the House floor in Congress. The debate on the floor was much broader than just the reversal of SAB 121, but on the SEC’s approach to digital assets. “The SEC claims they are protecting consumers, but the policy allows only unregulated non-banks to custody digital assets…The U.S. Congress is moving in a direction that the SEC isn’t,” said Flood.

On reading President Biden’s policy message threatening a veto, Flood commented, “When I read the President’s veto message, I thought he [Biden] is out of sync with the rest of America and doesn’t understand the risk of leaving banks out from custody of cryptocurrency.”

“I’m encouraged that 21 Democrats stood with us on this issue. That was a big win for us and always a good feeling,” said Nickel. On his discussions with other Democrats about the bipartisan resolution, Nickel commented, “Many of my Democratic colleagues said to me that they believe this is a place where the administration is wrong on policy. However, it’s difficult for Democrats to vote for a Congressional Review Act (CRA) against the current Administration”. The CRA is the law utilized in H.J.Res. 109 that permits Congress to overturn a specific agency’s rule.

Many Democrats including Ranking Member Maxine Waters (D-Calif.) of the House Financial Services Committee objected to the process of using the CRA to overturn the rule in her comments on the House floor. Waters noted in the debate that Flood and Nickel should have introduced a bill instead. Flood pointed out in our discussion that not only had he introduced a bill previously, but that they were left with no choice but to go this route. The Uniform Treatment of Custodial Assets Act was introduced in September 2023 and was sponsored by Flood, Nickel as well as the bill being co-sponsored by four Republican Members and three Democratic Members, making it a solid bipartisan measure.

Nickel supported Flood’s position by stating, “I wish there was another mechanism. But the SEC’s way out of their league here. This is not the mission of the SEC. We have prudential regulators who are in charge of banking that were not consulted on any part of SAB 121”.

When asked if he has a message to the cryptocurrency industry where many feel pressure from the numerous SEC enforcement actions and might consider going overseas, Flood said, “They should not leave the U.S…Do not consider going somewhere else…I urge folks in the industry to educate their Senators and Members of Congress on what is a bipartisan issue”.

Flood laid out that this process may take some time, but the U.S. will get the policy right. He finished with a battle cry for the industry, static, “The cavalry is coming.” As for Nickel, he described his fellow Democratic colleagues who are taking a position against Web3 and digital assets like, “…people who were against the Internet 20 years ago.” Nickel went on to state, “I hope the Administration and my Democratic colleagues take a step back and realize that this resolution will help protect consumers and make crypto custody safer and permit banks, who under our prudential regulators, are the finest in the world, to engage in this activity.”