SEC’s custody rule turns crypto regulation into a contentious ‘political football’ says Representative Nickel

Representative Wiley Nickel has criticized the United States Securities and Exchange Commission (SEC) for its handling of crypto regulation, accusing the regulator of turning it into a “political football” and displaying “open hostility.” In a letter to SEC Chair Gary Gensler, Nickel, a Democrat, argued that the regulator’s actions were not in line with its mission to protect investors and constituted a breach of its authority. Nickel specifically referenced the controversial Staff Accounting Bulletin 121 (SAB 121), a proposed rule that would require SEC-reporting entities to treat their crypto holdings as liabilities on their balance sheets. According to Nickel, this rule would prevent American banks from effectively custodying crypto exchange-traded products, thereby increasing the concentration of control in non-bank entities and posing a “concentration risk.” Nickel further expressed concern that the SEC’s negative stance towards the cryptocurrency industry is not in the best interest of President Joe Biden. He criticized the SEC for forcing the president to take a side on a matter that is important to many Americans. Nickel called on Gensler to withdraw SAB 121, but he remains confident that the Senate will pass a resolution invalidating the SEC’s proposed rule in its May 16 vote. The House of Representatives has already voted in favor of a bill overturning SAB 121. However, should the bill make it to Biden’s desk, he has indicated that he would veto it. Nickel and many Republicans, including Representative Tom Emmer, are concerned that SAB 121 could lead to U.S. investors seeking offshore custody solutions, which could be riskier in the long term. SAB 121 was introduced by the SEC in March 2022. The ongoing debate raises questions about the extent of SEC Chair Gary Gensler’s authority in shaping crypto regulation in the United States.