Does SEC Favor Legacy Banks? Blockchain Association Files FOIA to Probe SAB121 Guidance

• The Blockchain Association alleges that the US Securities and Exchanges Commission (SEC) favors traditional banks over crypto institutions.
• To investigate these allegations, the association has filed a Freedom of Information Act (FOIA) request.
• Favoritism could undermine public trust in the SEC's impartiality and raise concerns about government regulation fairness.

The Blockchain Association suspects the US SEC in covertly instructing banks on how to bypass the Staff Accounting Bulletin No. 121(SAB121).

The association filed a request for FOIA, which allows the public to request access to records held by federal government agencies to examine the matter.

Do the Blockchain Association's allegations hold some substance? Let's see.

Does SEC Favor Legacy Banks?

SEC's regulation by enforcement' approach has garnered significant criticism. However, alleged favoritism for legacy banks could be a new strategy that adds another layer of mistrust and suspicion toward the SEC's regulatory actions.

The Blockchain Association argues this could indicate an exemption for a select few traditional banks, leaving other institutions, including those serving the crypto industry, in the dark.

The FOIA request aims to determine whether the SEC is selectively protecting legacy institutions from complying with burdensome regulations it imposes on crypto industry players like Ripple and Terraform.

Specifically, the association wants to investigate allegations of unfair account closures and refusals to open new accounts and potential links to the failures of Signature, Silicon Valley Bank, and Silvergate.

What SAB121 Means for BanksSEC's stance on crypto is infamously harsh.

The SEC introduced SAB121 in 2022 and had been relying on it until 2024.

Both the House and Senate voted against it, so President Joe Biden repealed it in May.

In July, Congressman Waters said the SEC is working on the SAB121 amendment to override the Presidential veto.

Essentially, the bill required institutions that custody crypto assets to treat them as money. Before the bill took effect, banks wouldn't include crypto in their balance sheets unless they were engaged in trading.

However, the SEC argued banks must account for crypto-related risks even if they only provide custody.

This requirement implies that banks would need to hold more capital to cover potential losses from crypto assets.

Closing Remarks

The Blockchain Association's allegations against the SEC raise concerns about potential regulatory bias.

If the SEC is indeed instructing banks on how to circumvent the SAB121 bill, it could indicate a deliberate attempt to protect traditional financial institutions while imposing stricter regulations on the crypto industry.

Such favoritism could undermine public trust in the SEC's impartiality and erode confidence in the fairness of government regulations.

References

• Staff Accounting Bulletin No.121 (SEC)
• Blockchain Association (X)
• Maxine Waters, Ranking Member, Testifies Against Resolution to Overturn SEC's Accounting Guidance on Crypto Assets (House)

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