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US Lawmakers Argue SEC Accounting Policy Places Crypto Customers At Risk

The guidelines require financial institutions that hold cryptocurrency for customers to classify all digital assets they do not control as liabilities.

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US Lawmakers Argue SEC Accounting Policy Places Crypto Customers At Risk

Two US lawmakers have criticized the national securities regulator’s crypto accounting guidelines, claiming they put crypto customers at greater risk of loss.

iexclusivenews reports that the guidelines were issued by the United States Securities and Exchange Commission and went into effect in April of last year.

The guidelines require financial institutions that hold cryptocurrency for customers to classify all digital assets they do not control as liabilities.

They also recommend that digital assets be backed up by a safeguarding asset.

Senator Cynthia Lummis and Representative Patrick McHenry, on the other hand, argued on March 2 that these guidelines will “likely” discourage regulated entities from engaging in digital asset custody, which is the opposite effect that the regulator should be aiming for

The lawmakers argued in a letter to senior officials at the Federal Reserve System, the Office of the Comptroller of the Currency. The Federal Deposit Insurance Corporation, and the National Credit Union Administration that while Staff Accounting Bulletin (SAB) 121 was intended to provide clarity on accounting treatment for digital assets, it had unintended consequences.

They wrote:

“SAB 121 places customer assets at greater risk of loss if a custodian becomes insolvent or enters receivership, violating the SEC’s fundamental mission to protect customers.”

What You Should Know 

The lawmakers argue the effect of SAB 121 will be to “deny millions of Americans access to safe and secure custodial arrangements for digital assets.”

The lawmakers also disagreed with the “breadth of the ‘digital asset’ definition in SAB 121,” arguing that “a more nuanced hierarchy for this asset class.

Which considers the opportunities and risks of digital assets with different functions is necessary.

Lawmakers including Lummis have kicked up a fuss over the SEC accounting bulletin in the past.

Last year, on June 16, five Republican senators, including Lummis, sent a letter to the SEC expressing their concern. That the bulletin was “regulation disguised as staff guidance” and violated the Administrative Procedure Act.

However, iexclusivenews Nigeria reports that on March 31, shortly after the bulletin was released, SEC commissioner Hester Peirce expressed similar concerns.

Noting that it was “the way the change is being made” rather than the accounting determination itself that she objected to. She described the shift as follows:

“Yet another manifestation of the Securities and Exchange Commission’s scattershot and inefficient approach to crypto.”

 

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