The crypto accounting guidelines issued by the US Securities and Exchange Commission (SEC) have been criticised by two congressmen, who argue that the rules put clients’ cryptocurrency assets at a higher risk of loss. The guidelines, which came into effect in April of last year, require financial institutions to classify as liabilities any digital assets they do not own and to have a safeguarding asset to support these digital assets.
Senator Cynthia Lummis and Representative Patrick McHenry wrote a letter to officials at several regulatory bodies, stating that the guidelines would discourage regulated firms from engaging in digital asset custody, which is the opposite of what the regulator should be doing.
They argue that the guidelines violate the SEC’s core responsibility to protect consumers by increasing the risk of loss for customer assets in the event that a custodian goes bankrupt or enters receivership. They also claim that the guidelines will deny safe and secure custody arrangements for digital assets to millions of Americans.
The lawmakers are calling for a more sophisticated hierarchy for digital assets that takes into account their benefits and hazards with varied functionalities, and they object to the broad definition of a digital asset in the guidelines.This is not the first time that Lummis and other lawmakers have expressed concern about the SEC’s accounting report.
In June of last year, they sent a letter to the SEC stating that the bulletin violated the Administrative Process Act and acted as staff advice while masquerading as regulation.
SEC commissioner Hester Peirce also expressed similar worries shortly after the bulletin’s publication, stating that she had issues with the way the change was being implemented rather than the accounting finding itself.
She described the modification as an example of the SEC’s haphazard and ineffective handling of cryptocurrency. In summary, two US congressmen have criticised the SEC’s crypto accounting guidelines, stating that they increase the risk of loss for clients’ assets and will discourage regulated firms from engaging in digital asset custody. They are calling for a more sophisticated hierarchy for digital assets and object to the broad definition of a digital asset in the guidelines. This is not the first time that concerns have been raised about the SEC’s handling of cryptocurrency.
Lawmakers and business leaders have voiced their criticism of the SEC’s approach to regulating the cryptocurrency industry. While the SEC has taken steps to combat fraudulent cryptocurrency projects, it has faced criticism for not providing clear guidance to the sector. Currently, the SEC is reviewing several applications for Bitcoin exchange-traded funds (ETFs), which could bring greater clarity to the market.
There is a need for lawmakers and regulators to work together to develop clear regulations that protect consumers while fostering innovation as the cryptocurrency industry continues to evolve. Many individuals in the industry are concerned about the current approach, and it is unclear how the SEC will respond to the concerns raised by legislators regarding SAB 121.