Does the SAB 121 Vote Mean Anything for Future Crypto Legislation?

The U.S. Senate joined the House of Representatives in voting to repeal a controversial U.S. Securities and Exchange Commission (SEC) accounting rule that imposed burdensome capital requirements on crypto custodians. That’s a relatively big deal, considering the so-called Staff Accounting Bulletin, a.k.a. SAB 121, was one of the few things the crypto and banking industries have been aligned in opposing.

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Unfortunately however, the legislative measure is now heading to the desk of President Joseph Biden, who has vowed to veto it in a show of solidarity with the SEC. Although a number of high profile Democrats, including New York Sen. Chuck Schumer, voted in favor of overturning the bulletin, the Senate’s 60 to 38 vote on Thursday failed to cross the threshold to override a presidential veto.

It’s hard to read the tea leaves of the vote, which almost suggests something of a realignment among legislators willing to pass decent crypto regulations (or at least repeal the bad). Then again, there are a number of reasons why it’d make sense to ditch SAB 121, not the least of which is that the nonpartisan Government Accountability Office found the SEC forced it through without proper congressional oversight.

Of course, perennially antagonistic crypto skeptic Sen. Elizabeth Warren voted to keep the rule in place, arguing “The unique risks of crypto can create liabilities that seriously impact a company’s financial condition. SAB 121 simply clarifies how companies should account for those risks in their financial disclosures.” But still, is the bipartisan support a good sign for other legislative efforts, like the proposed stablecoin and market structure bills under consideration?

“Hate to be a downer here, but I don’t think D support to rescind crypto accounting rule means a veto won’t happen. I think the D ‘ayes’ on the anti-SBA 121 vote were cast because they know the White House is going to veto it. It’s the cart, not the horse,” James Wester, director of crypto and co-head of payments at Javelin, said on X. Apparently it’s easier to vote for something you know will ultimately get showdown?

Meanwhile, Columbia Business School associate professor Austin Campbell said that Thursday’s vote proves that crypto is bipartisan. “This is a American issue, not a partisan one,” he said.

Whatever the case, it is worrying how precarious crypto legislation is. A rule that two pluralities vote in favor of, that is widely criticized by industry actors and has even been called “idiotic” by knowledgeable actors like Nadine Chakar, often called one of the most important women in finance who helped found State Street Digital and is now running DTCC’s crypto unit, (and who is speaking at Consensus 2024), will likely remain in place.

This isn’t even just purely an academic issue, because the SAB 121 – though technically “nonbinding” – is already having an effect on financial institutions ability to enter into the crypto custody business, according to an open letter signed by the Bank Policy Institute (BPI), American Bankers Association (ABA), Financial Services Forum (FSF) and the Securities Industry and Financial Markets Association (SIFMA) in February.

I mean, this is a bit of a counterfactual, but how far advanced would sectors like stablecoins and interbank blockchain rails be had clear regulations been written years ago? It seems trivially true that regulatory uncertainty (and more recently, hostility) has prevented firms from experimenting with crypto. For instance, certainly some big custodians would be interested in custodying all that ETF bitcoin, as Fortune’s Jeff John Roberts recently wrote.

It’s interesting that 12 Dems in the Senate could come together to help vote down a harmful rule, but I’m not sure the SAB 121 story is really all that encouraging.