U.S. Lawmakers Argue SEC Accounting Policy Undermines Safe Crypto Custody

Two Republican lawmakers who have been central to the U.S. Congress’ ongoing efforts toward regulating crypto are questioning government policies controlling how financial firms handle their accounting for cryptocurrency.

U.S. Rep. Patrick McHenry (R-N.C.), the chairman of the House Financial Services Committee, and Sen. Cynthia Lummis (R-Wyo.), who has authored crypto legislation, sent a letter to several banking agencies on Thursday asking how they’re dealing with a controversial bulletin from the Securities and Exchange Commission that advised financial institutions they should maintain customers’ crypto holdings on their own balance sheets.

The letter to the Federal Reserve and other U.S. banking agencies criticized the SEC’s move last year – known as Staff Accounting Bulletin 121 – as a measure that could “deny millions of Americans access to safe and secure custodial arrangements for digital assets,” because it would force regulated banks to reject crypto custody as something that comes with major capital demands.

“A recent decision in the Celsius [Network] bankruptcy, which classified all Celsius’ customers as unsecured creditors, and therefore at the back of the line to recover their assets, highlights the legal risk of effectively forcing customer custodial assets to be placed on balance sheet,” the lawmakers argued in their letter.

The letter questioned the banking agencies on what interactions they’ve had with the SEC on this point, and whether the securities regulator’s position conflicts with their own policies.

Federal Reserve Chair Jerome Powell already said last year the central bank was evaluating the SEC’s directive, which – for digital assets – changes longstanding practice that customers’ assets would be kept off a financial firm’s balance sheet.

Read more: US Fed Evaluating SEC’s Position on Digital Assets Custody, Powell Says