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Maxine Waters, Ranking Member, Testifies Against Resolution to Overturn SEC’s Accounting Guidance on Crypto Assets

Congresswoman Maxine Waters (D-CA), the top Democrat on the House Financial Services Committee, delivered the following testimony in front of the Rules Committee on H.J. Res. 109, a Congressional Review Act resolution that would overturn accounting guidance on crypto assets from the Securities and Exchange Commission, known as Staff Accounting Bulletin 121, or SAB 121.

Thank you, Chair Burgess and Ranking Member McGovern, I thank you for the opportunity to testify here today regarding H.J.Res. 109, a Congressional Review Act resolution that would overturn accounting guidance on crypto assets from the Securities and Exchange Commission, known as Staff Accounting Bulletin 121, or S-A-B 121. The CRA would not only limit the SEC’s ability to provide crypto-related accounting guidance, but also its ability to provide accounting guidance for other financial statements.

So, let’s start by talking about what SAB 121 does. It has been in place for two years and it only applies to companies that hold crypto assets on behalf of their customers or contract others to do the same. This is known as providing custody services. SAB 121 provides guidance for these companies in two respects: first, it advises companies on how they should disclose the crypto assets that they custody; and second, it advises companies on how they should record those crypto assets on their balance sheets.

The first guidance I described on disclosure of crypto assets is critical to providing transparency for investors and the public on volatile crypto assets. This kind of transparency helps prevent the kind of fraud and mishandling of crypto assets that led to the collapse of major crypto companies like FTX. In fact, this disclosure guidance has been broadly supported by industry and advocate stakeholders alike.

The second prong of this guidance advises relevant companies on how to recognize the crypto assets on their balance sheets. Under the guidance, the amount of the liability should correspond to the fair value of the crypto-assets they are obligated to safeguard. This ensures that the company providing custody services has sufficient capital to secure these assets for the users against any theft, loss, or other misuse that could result in financial consequences.

This process ensures transparency in financial reporting and helps investors and stakeholders understand the financial obligations of a company, particularly the risks associated with holding and safeguarding crypto assets.

So why are my colleagues on the other side of the aisle attempting to overturn this important guidance? It has to do with one particular special interest group – large custody banks – who have raised a narrow concern that the accounting guidance in SAB 121 may conflict with how prudentially regulated custody banks account for their customers’ assets. To be clear, even this special interest group has expressed support for the disclosure guidance in SAB 121. They are only concerned about how the accounting guidance applies to their balance sheet.

Instead of introducing legislation to narrowly address this concern, Republicans are charging forward with this CRA resolution to overturn ALL of SAB 121, not just the part that this special interest group has complained about. Moreover, this resolution would prohibit the SEC from issuing any guidance in the future that is substantially similar to this one. This means that the SEC would not be able to simply turn around and narrowly address this one concern while preserving the rest of the guidance. It also means that while the crypto industry clamors for the SEC to provide more clarity, this resolution would tie the SEC’s hands, making it harder for them to provide the clarity the industry purportedly wants.

I am further concerned that if this resolution is passed, industry and investors alike will no longer be able to receive timely guidance from SEC staff, as this resolution is also intended to be a warning. Passing this resolution would have broad and negative consequences for all public companies and their investors, with implications for the entire securities market, not just crypto.

The SEC has issued numerous Staff Accounting to help companies understand how SEC rules apply in specific situations. If the SEC were to pull back in this regard, it would be particularly harmful to smaller companies with less resources dedicated to compliance, and could result in more enforcement actions as companies struggle to understand what they should be doing to comply with SEC rules.

Chair McHenry and I have worked well together to find common ground on crypto issues like stablecoins. However, instead of finding ways to work together, Republicans are recklessly pushing this harmful, partisan resolution.

Moreover, this bill is a continuation of their relentless attacks on the SEC and Chair Gary Gensler. Since this Congress began, Financial Services Committee Republicans have held one hearing after another, attacking Wall Street’s cop on the beat for simply doing its job. They have also passed one bill after another in Committee that would make it harder for the SEC to do its job of protecting investors and the capital markets. The reason our markets are the envy of the world is because they are trusted—trusted that the rule of law prevails. Undermining this important agency with this bill only serves to damage that critical trust.

This bill also undermines the SEC’s work battling against bad actors in the crypto industry. The SEC is one of the main agencies that has been cracking down on noncompliance by the crypto industry. To date, the SEC, under two Democratic and one Republican Chairs, has taken over 170 enforcement actions against crypto criminals—more than 70 of which were levied during Chair Gensler’s tenure. However, the crypto industry, which claims that it wants regulation, is suing the SEC for trying to regulate it. The SEC is now facing more than half a dozen well-funded lawsuits from crypto and this CRA will likely be fodder for even more lawsuits.

I will also note that this CRA resolution is opposed by several investor protection groups, like Americans for Financial Reform; Better Markets; Public Citizen; Consumer Federation of America; United States PIRG, and many others.

So I would strongly urge my colleagues to oppose this bill, and I yield back.


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