Proposed Legislation to Address Regulatory Uncertainty and Investor Harm in Cryptocurrency Sector
While the bulletin was intended to provide clarity regarding the accounting treatment for digital assets, it has been met with criticism from both legislators and regulators alike.
Two United States lawmakers have expressed their disapproval of the crypto accounting guidelines outlined by the Securities and Exchange Commission (SEC), arguing that it places crypto customers at an increased risk of loss.
The guidelines, which became effective in April 2020, require financial companies holding crypto for customers to recognize all digital assets they do not control as a liability and to back digital assets with a safeguarding asset.
The lawmakers have argued that these guidelines are overly restrictive and could potentially lead to customers suffering financial losses.
On March 2nd, Senator Cynthia Lummis and Representative Patrick McHenry expressed their concern that the guidelines set forth by the Federal Reserve System, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Administration would "likely" discourage regulated entities from engaging in digital asset custody, which is the exact opposite of what the regulator should be doing.
In a letter to the ranking individuals of the aforementioned organizations, the lawmakers argued that Staff Accounting Bulletin (SAB) 121, while intended to provide clarity on accounting treatment for digital assets, carries negative side effects. They stated that:
By raising the possibility of customer assets being lost in the event that a custodian experiences financial difficulty or goes into receivership, SAB 121 "violates the fundamental goal of the SEC to protect customers"
The lawmakers further argued that the effect of SAB 121 would be to "deny millions of Americans access to safe and secure custodial arrangements for digital assets," and urged the organizations to reconsider their stance.
Lawmakers, including Senator Cynthia Lummis, have expressed their disapproval of the SEC accounting bulletin, SAB 121, due to its broad definition of digital assets.
Five Republican senators argued for the need for a more nuanced hierarchy for this asset class, one that takes into consideration the opportunities and dangers of digital assets with various functions, in a letter sent to the SEC on June 16.
SEC Commissioner Hester Peirce echoed these sentiments on March 31st, shortly after the bulletin was released. She noted that it was the manner in which the change was made, rather than the accounting determination itself, that she took issue with, describing it as:
"Another illustration of this is the Securities and Exchange Commission's haphazard and ineffective reaction to cryptocurrency."
Also read - U.S. Judge Challenges SEC's Objection to Voyager-Binance.US Deal
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