U.S. Senate Votes to Kill SEC's Crypto Accounting Policy, Testing Biden's Veto Threat

The U.S. Senate joined the House of Representatives on Thursday in seeking to erase the controversial Securities and Exchange Commission (SEC) crypto policy known as Staff Accounting Bulletin No. 121, though President Joe Biden has vowed to veto the resolution.

The Senate voted 60-38 on the effort to overturn the policy, commonly referred to as SAB 121, though the crypto industry may not breathe a sigh of relief over the initiative's banking constraints, because Biden said that letting the rule be removed this way would disrupt "work to protect investors in crypto-asset markets and to safeguard the broader financial system."

A dozen Democrats voted alongside a majority of Republicans in favor of the resolution, easily giving it well over the simple majority of votes needed to pass. However, the resolution did not receive enough votes to make it veto-proof.

Even Senate Majority Leader Chuck Schumer (D-N.Y.) bucked the leader of his party in opposing the SEC's crypto effort, alongside other leaders in the Democratic Party.

Issued by the agency in 2022, SAB 121 held that a company keeping a customer's cryptocurrencies should record them on its own balance sheet – which could have major capital implications for banks working with crypto clients. Republican lawmakers bashed the SEC for instituting a policy without going through the necessary rule process, and the Government Accountability Office agreed, finding that the regulator erred in how it handled what should have been a rule instead of staff guidance.

Read More: House Resolution to Overturn Controversial SEC Rule Likely to Pass in Senate: Sources

Lawmakers in the House and Senate went after SAB 121 under the Congressional Review Act, which allows Congress to overturn federal rules. A number of Democrats – including 21 in the House – joined with the largely Republican effort, defying the White House's warnings.

Because they sought to kill the policy with the Congressional Review Act, a successful reversal would – by law – mean the SEC wouldn't be able to pursue similar policies in the future, which the White House statement suggested "could also inappropriately constrain the SEC’s ability to ensure appropriate guardrails and address future issues related to crypto-assets including

financial stability."

Apart from a previous crypto taxation provision that made its way into an infrastructure law despite the industry's resistance, this marks the first time that Congress has moved on an issue that focuses on the crypto industry, and it was in a way meant to aid the sector.