Rep. Mike Flood (R, NE), a freshman Member of the House Financial Services (HFS) Committee, has led a relentless charge in the 118th Congress to rescind the Securities and Exchange Commission’s (SEC) Staff Accounting Bulletin 121. And, in spite of the recent veto override setback, he still sees opportunity.
“SAB 121,” as it is known, precludes traditional finance firms from offering custody services for crypto due to arguably, onerous reserve requirements courtesy of the SEC.
Put another way, the bulletin effectively prevents regulated banks from touching digital assets and, consequently, prevents digital assets from being under the U.S. financial system umbrella.
In May, Rep. Flood’s joint resolution [H.J.R.109] passed both Houses of Congress with bipartisan support in a watershed moment for digital assets only to be vetoed by President Biden. Earlier this month, the veto override vote in the House failed…
So now what?
Yesterday, blockchain tipsheet caught up with Congressman Flood on SAB 121:
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- Initial reaction to the veto
- Efforts to increase Dem support, post-veto
- Next steps for rescinding SAB 121
- On the SEC working on one-off basis with TradFi companies
- House Appropriations line item on SAB 121
- State of bipartisanship in the 118th Congress
- The next Congress and digital assets legislation
- Flyover Fintech event on October 21
The interview has been lightly edited for clarity.
blockchain tipsheet: What was your reaction to the veto of House Joint Resolution 109 rescinding the SEC’s SAB 121?
Rep. Mike Flood: Well, I wasn’t surprised.
During the debate on the Floor, before we actually voted for it [on May 9], the White House put out a preemptive notice that they intended to veto it and Ranking Member Maxine Waters (D, CA) was waving that around during the debate and trying to remind our Members that the President intended to veto it.
Nevertheless, it got 21 votes from Democrats in the House and 12 votes in the Senate – one of them being Majority Leader [Chuck] Schumer (D, NY).
I think the support from Congressman Wiley Nickel (D, NC) and others shows that this does not need to be a partisan issue, and it clearly is NOT partisan.
There should be a path forward where Republicans and Democrats could agree on – not just repealing this – broader regulatory certainty for digital assets.
I think that during that debate, one of the criticisms that the Ranking Member had was, “Well, maybe this isn’t the right way to take down SAB 121 using the Congressional Review Act.”
Okay. Then, why isn’t my other bill moving? -I had a bill to change it in the Federal code and repeal it…
But, I wasn’t surprised with the veto.
From when the President officially vetoed the resolution in late May to when you had the override vote in July, was there any effort to get more Democrats to vote in favor of the override?
Well, a lot of this was on Rep. Wiley Nickel’s “back” because he’s obviously in the Democratic conference. I knew that our votes would hold -and I know that he felt that they would get about the same number [of Democrats].
Some on our side, even some of the leadership, were surprised to get 21 votes the first time and so they thought, “Well, maybe this shows a growing trend and more will people go for it.”
But ultimately, the result was pretty much the same. I do know that Mr. Nickel talked to folks on his side and we both were pretty convinced that this would not be successful. We changed a few minds, but we lost a few too.
So what’s next for a rescinding SAB 121? The CRA resolution appears to be kaput. Will you pursue your bipartisan “Uniform Treatment of Custodial Assets Act” [H.R.5741] from last September, for example?
I think there are multiple vehicles.
One is my “Uniform Treatment of Custodial Assets Act.” I’m doing that with Rep. Ritchie Torres (D, NY).
The other option is that we pass the “Financial Innovation and Technology for the 21st Century Act” (FIT 21) [H.R.4763] which came out of the Financial Services Committee.
FIT 21 passed with a lot more bipartisan support in the House than even the CRA did, and is sitting over at the Senate currently.
Now, Presidential politics are going to put the brakes on a lot of issues – whether this is done before November or the lame duck [remains to be seen]. That bill also has the repeal of SAB 121 in it. And so, there are two different ways to get this done.
As it relates to my bill, I’m still hopeful I can get it marked up in September and get it on the Floor as soon as possible to deal with this. And then rely on the leadership and my chairman, Mr. McHenry, to find a vehicle over in the Senate to put this all together.
So, those are the two ways -and you are right, the CRA is dead.
It has been reported that during the time you’d been working on repealing SAB 121 – the Securities and Exchange Commission had been working with traditional finance companies on a one-off basis to get them into compliance with the Bulletin regarding the custody of crypto. What’s your reaction?
The development came up on the House Floor during the debate on the override. Suddenly, the Ranking Member said that certain financial institutions were being reached out to by the SEC and given a pass on having to comply with SAB 121.
What’s so frustrating about that is I [initially] learned about it the same way everybody else did -through the press and then on the Floor. And the SEC has not shared any details of who this exception applies to or how the exceptions to SAB 121 would apply. None of this is public or transparent. And none of this can be used as an instructive for other publicly-traded banks that have an interest in taking custody of digital assets going forward.
What kind of policy making is that?
I think on the Floor, I said, “This is amateur hour….” This is stuff that you would expect to see at a county board trying to decide whether or not to gravel a two mile lane of some farmer’s field to get farm equipment through. This is the Federal government picking and choosing who has to comply with a Staff Accounting Bulletin…
Instead of simply rescinding it, which would have been transparent, the SEC has continued to double down on their bad policy rather than one set of unworkable rules, there are now two sets of rules: one public and unworkable and the other one secret and ambiguous.
It’s absolutely no way to make regulatory policy and as somebody who spent 10 years in the state legislature, I have never seen an agency of the executive branch pick winners and losers based on something… with what purpose?
Do they do it for their friends? Do they do it for people that have a certain asset amount or competence that we don’t know about?
It really calls into question [the SEC] using [SAB 121] in the first place. And, the fact that they are doing this really demonstrates they have no business in banking policy and issuing a staff accounting bulletin like this.
And if you look at [SEC Chair Gary] Gensler’s year, he’s had a bad one.
FIT 21 passed resoundingly through the House of Representatives -a clear signal that the House of Representatives, [on a bipartisan basis] is not on board with his anti-digital asset agenda. And this SAB 121 makes a mockery of an executive branch agency.
As you can tell, I have really strong feelings about that.
Any comment on the viability of a bill from House Appropriations which includes a line item which removes SAB 121?
I think all efforts to remove SAB 121 are welcome.
I submitted some report language that made it into the final bill last year that tries to bring some accountability to the SEC on the issue. We had to be careful with the way we drafted that because if it had gone too far the Democrats would have thrown it out. The language you mentioned may have some trouble passing in the Senate. But, let’s see how the process plays out.
I’m for anything or anyone that can fix the problem.
The person that can fix the problem today is Gary Gensler. He needs to look at this, own up to it and say, “This isn’t working. We need to rescind it.”
We certainly need to get it done this Congress – there are still a lot of potential avenues – the NDAA, Appropriations… “Step one” in my mind is seeing where Ranking Member Waters is on a “legislative fix” like my bill. She signaled during the debate on the CRA, originally, that the CRA route was not the way to go, but introducing a regular bill might be. I’d like to take her up on that.
Would your “Uniform Treatment of Custodial Assets Act” be that legislation or would it be something different?
At the simplest level, it would be my legislation. My guess is that language from my bill is likely to get tossed into a vehicle that’s absolutely going to have to pass.
And, I’m not the only one pushing this… you’ve got HFS Chair Patrick McHenry (R, NC), Vice Chair French Hill (R, AR), Rep. Andy Barr (R, KY), all the members of the digital asset committee – and bipartisan – looking at ways to get this done.
And so if we all keep pushing, I’m hoping that it’ll sneak its way into one of these must pass vehicles and then we can get we can get over the finish line and the President will sign it.
What would you say about the state of bipartisanship as it relates to digital assets-related legislation today in Congress? Has it changed in the past year?
I think the Democrats are working very well with us on on this. But for [the remaining] partisan divide, I think we’d have even more votes, but a lot of Democrats are acknowledging this is happening, it’s going somewhere. They have constituents talking to them.
Currency is not a partisan issue. Digital assets are not a partisan issue. You’ve got some exceptionally bright people on that side of the aisle that value the conversations we’re having in digital assets – even folks that don’t agree with the bills we put forward, they’re very very engaged.
Maybe I’ve landed on the right committee… but I have to think that on Financial Services, we work in a bipartisan way on all the big issues because most of what we work on, there isn’t a “blue” or “red” way forward.
And so, anybody paying attention to this, or reading this article, reach out to your Member of Congress and talk to them about why this is important to you… and it doesn’t matter their party.
People have an open mind and the more they hear from people – on why this is important – the better chance we have of being successful in Washington.
Looking ahead to the next Congress, the 119th Congress… do you see momentum for digital assets legislation, in general?
Yes. I think we had a we’ve had a breakthrough year this year in Congress and – but for it being a presidential election year – we might even have had a lot more success to look at.
I have the feeling that what doesn’t get done in the 118th will get done in the 119th and hopefully in the next year. There’s a real willingness in wanting to do this.
And, the Senate could look a bit different after this year. And if it does, and the House stays the same, prepare yourself for a lot of progress because we’ll be able to pass rules and get them signed by the President that will put America in the driver’s seat.
Finally, your office announced the first speaker – Rep. Andy Barr – today for your second annual Flyover Fintech in Lincoln, Nebraska on October 21. Can you share what the focus will be for this year’s event?
This year it’s all about artificial intelligence and cybersecurity. (Last year was digital assets.) This is an outgrowth of my service on the House Financial Services’ AI Task Force.
We want to open everyone’s eyes in Lincoln about everything that’s going on and the panelists we’re going to have, as we announce them, will be top notch.
Rep. Barr is going to be headlining this year’s event. I was just in his district for a field hearing and he’s been on this committee for a long time and has good insights on where the Committee is going. Getting him to headline is a true victory.
We are already seeing registrations come in pretty quickly. So if you’re interested in coming, sign up now, because space is limited. I hope to have other members of Congress join me in Lincoln this October, too.
Plus, it’s Husker football season – who wants to miss that?