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US lawmaker urges SEC to repeal controversial crypto custody rule SAB 121

Nickel argues SAB 121 pushes US investors offshore and hinders banks from custodying Bitcoin ETFs.

US lawmaker urges SEC to repeal controversial crypto custody rule SAB 121

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US Representative Wiley Nickel has called on the Securities and Exchange Commission (SEC) and its Chair, Gary Gensler, to repeal the contentious Staff Accounting Bulletin 121 (SAB 121) before the upcoming Senate vote.

SAB 121 mandates financial institutions custodying crypto to hold these assets on their balance sheets, a requirement that has drawn criticism from various stakeholders who argue that it impedes the growth of the crypto sector.

Despite President Joe Biden’s stated intention to veto any attempt to overturn SAB 121, citing his administration’s strong opposition to the change and the SEC’s efforts to protect crypto investors, a non-partisan House of Representatives passed a resolution last week rejecting the regulation.

“The SEC’s open hostility toward the digital assets industry isn’t serving President Biden’s best interests. The SEC is turning cryptocurrency regulation into a political football an forcing President Biden to choose sides on an issues that matters to many Americans,” the lawmaker said in a letter addressed to SEC Chair Gary Gensler.

Nickel suggested that withdrawing the directive would be a wise move, given the growing bipartisan support ahead of the Senate decision. Nickel also took a stance criticizing the SEC for allegedly circumventing the rulemaking process as it issued SAB 121, arguing that Staff Accounting Bulletins are intended to clarify existing policies instead of creating new rules.

“It’s the mission of the SEC to protect investors. However, SAB121 does just the opposite by preventing highly regulated American banks from placing digital assets in their custody at scale.”

The lawmaker argues that the resolution has driven US investors to seek offshore custody alternatives and has prevented banks from participating in custody services for recently introduced Bitcoin ETFs. Nickel warns that such a trend could lead to a potential concentration risk for the country’s financial system, if most issuers continue to rely on a single non-bank entity for custody services.

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