The US Senate has recently voted on a bipartisan resolution to overturn the Securities and Exchange Commission's (SEC) SAB 121, a staff accounting bulletin that limits banks from offering digital asset custody services.

This decision comes after a similar vote was made by Congress last week. The resolution passed with 60 votes in favor and 38 against, including the vote of Democrat Senate majority leader Chuck Schumer in favor. This is significant because the White House had previously stated their intention to veto the resolution if it reached the President's desk.

As per accounting regulations, publicly traded companies, such as banks, are required to disclose assets under custody as both assets and liabilities on their balance sheets. Although these assets usually belong to clients and are not typically included in the balance sheet, banks must allocate a substantial amount of capital for digital asset custody due to regulatory capital requirements. Consequently, this is the primary reason why banks are not currently providing custody services for Bitcoin ETFs.

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Democratic Congressman Wiley Nickel expressed his dissatisfaction with SAB 121 and was involved in drafting a Congressional resolution. He also sent a letter to SEC Chair Gensler prior to the vote, urging him to retract SAB 121. Despite this, Congressman Nickel stated that he has not received a response from Gensler.

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The main objective of the Securities and Exchange Commission (SEC) is to protect the interests of investors. However, it is contended that SAB 121 undermines this goal by imposing stringent regulations on American banks, limiting their ability to securely hold digital assets on a significant level.

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The Senate resolution was put forth by Senator Lummis. Prior to the vote, she emphasized the negative impact of including assets on the balance sheet for consumers going through bankruptcy as it commingles their assets with those of the custodian. She expressed confusion over the refusal to reconsider this policy despite receiving criticism from both sides of the political spectrum.

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In her recent post on X, she expressed that the Senate's approval of a CRA to reverse SAB 121 is a win for financial progress and a clear disapproval of the strategies employed by the Biden administration and Gary Gensler in their approach towards cryptocurrency.

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Further, the limitation prevents the SEC from implementing fresh regulations on this matter, which is not ideal. However, given the GAO's ruling last year, the SEC has had ample time to discuss and amend SAB 121.