In a bid to reshape the regulatory landscape surrounding cryptocurrencies, US lawmakers have launched a challenge against the Securities and Exchange Commission’s (SEC) policy on crypto custody. The move underscores growing tensions between regulators and industry players, sparking debates over the extent of regulatory oversight and its impact on innovation.

Led by Representatives Mike Flood, Wiley Nickel, and Senator Cynthia Lummis, the bipartisan effort aims to revoke the SEC’s Staff Accounting Bulletin (SAB) 121, which has been a point of contention within the crypto industry. SAB 121, criticized for its restrictive approach to crypto custodian services in the banking sector, has drawn ire from industry participants who argue that it stifles growth and hampers innovation.

The resolution seeks to eliminate restrictions that prevent banks from offering crypto custodial services unless they keep managed assets on the balance sheet—a provision that industry groups like the American Bankers Association and the Bank Policy Institute have rallied against. These organizations argue that keeping assets off-balance sheet would facilitate broader adoption of crypto-related services within the traditional financial sector, paving the way for increased innovation and market expansion.

The focal point of this challenge is the SEC’s Staff Accounting Bulletin (SAB) 121, a directive that has come under increasing scrutiny from industry participants. The controversy surrounding this bulletin revolves around its prohibition on banks offering crypto custodian services to digital asset investors unless the managed assets are kept on the balance sheet. Critics argue that this restriction stifles innovation and impedes the organic growth of the crypto market.

The lawmakers behind the resolution argue that SAB 121 is not merely an accounting bulletin but functions as a rule that limits traditional banks from providing custodial services for digital assets. Congressman Wiley Nickel stressed the need for Congress to intervene, stating, “Gary Gensler and the Securities and Exchange Commission continue to overstep their authority, and it’s time for Congress to weigh in on Staff Accounting Bulletin No. 121.”

Support for the resolution has been vocalized by industry groups, including the American Bankers Association and the Bank Policy Institute. These organizations collectively advocate for the reversal of SAB 121, emphasizing the importance of allowing assets custodied by banks to be kept off-balance sheet. This, they believe, would facilitate broader adoption of crypto-related services within the traditional financial sector.

The introduction of the resolution reflects mounting criticism of SEC Chair Gary Gensler and the commission’s regulatory approach towards the crypto industry. Lawmakers have accused Gensler of overreach and aggressive tactics, calling for his ousting and proposing measures to curb the SEC’s authority.

Representatives Tim Burchett and Steve Womack voiced concerns about the SEC’s enforcement actions, labeling them a financial drain on the United States. They proposed drastic measures, including a significant salary cut for Chair Gensler, while Majority Whip Tom Emmer called for Gensler’s removal, citing concerns over his regulatory approach and its impact on capital markets.

The resolution’s outcome holds significant implications for the future of crypto regulation in the United States. As lawmakers and industry stakeholders clash over the balance between oversight and innovation, the debate underscores the need for comprehensive regulatory frameworks that foster innovation while addressing concerns around investor protection and market integrity.

As regulatory tensions continue to simmer, stakeholders across the crypto landscape are closely monitoring developments, anticipating potential shifts in policy and regulatory enforcement. The outcome of the resolution could chart a new course for crypto regulation in the United States, shaping the industry’s trajectory and influencing market dynamics for years to come.