Come Inauguration Day in the United States, the first political domino to topple could be the industry’s banking hurdles, though the White House may be the wrong place to watch the most consequential action.
The cryptocurrency industry will surely cheer loudly at some of the fireworks of executive orders when President-elect Donald Trump is sworn in, which could supposedly include directives on cryptocurrencies, but such orders may be more smoke than fire. (After all, President Joe Biden issued a cryptocurrency order in 2022 directing the federal government to better control cryptocurrencies.)
As the White House touts its vision for the direction of crypto policy, concrete steps will be taken at regulatory agencies such as the Securities and Exchange Commission and the Federal Deposit Insurance Corporation. These are nominally independent regulators, but they will have The new leadership is closely aligned with Trump’s view, even if there is a delay in confirming the permanent heads of the agencies.
In the SEC, former Commissioner Paul Atkins is set to receive his formal nomination to take over. But the veteran SEC conservative may find himself caught in the middle of the potential bottleneck of Senate confirmations, where the most urgent appointees, like the new Treasury secretary, will be first in line.
On January 21, the day after the inauguration, the commission will have only three members: two Republicans and one Democrat. Trump will be able to name one of the two sitting Republicans as acting president, just as Biden had named Allison Herren Lee to that position on January 21, 2021, at the beginning of his presidency. Both Republican commissioners, Mark Uyeda and Hester Peirce, once served Atkins as his SEC attorneys, so they’re likely on the same page as him, anyway.
Some expect Commissioner Uyeda to get the nod to be interim president, and there is one change he could make immediately that would have massive ramifications for crypto banking. He has said he is in favor of deleting the controversial Staff Accounting Bulletin No. 121 (SAB 121) which effectively requires banks to treat their clients’ crypto assets as their own, taking the tokens into account on their balance sheets and assuming the resulting impact. in the capital they need. expensively maintain. A hypothetical interim president, Uyeda, could order the bulletin to be withdrawn, taking law enforcement pressure off big banks that have had to tread cautiously on cryptocurrency issues.
Commissioner Peirce also openly opposed SAB 121 from within the agency, issuing a statement arguing that “the SAB does not recognize the Commission’s own role in creating the legal and regulatory risks that justify this accounting treatment.” Therefore, if she were to take over, the newsletter could also be deleted.
SAB 121 has been under pressure since its issuance, and Congress rose last year to remove it from the books in a broad bipartisan vote to use the Congressional Review Act to reverse the SEC’s action. But President Biden used his veto power to protect the accounting standard.
In a public statement in September, SEC Chief Accounting Officer Paul Munter stood firm on SAB 121, saying his accounting staff still felt the same way that a bank’s balance sheets should “reflect its obligation to safeguard cryptoassets held for others.” But the agency announced Tuesday that it would retire next week. The revamped agency will have a new chief accountant.
If the acting chairman waits for Atkins to arrive, the former commissioner is expected to get rid of SAB 121 himself. When his name emerged last month as Trump’s pick for the SEC, Rep. Mike Flood, a Nebraska Republican who led the House charge against the accounting rule, posted on social media site X that he looked forward to “working with him to end SAB 121.” “
Meanwhile, US banking regulators could quickly issue orders to their teams of banking supervisors that cryptocurrencies no longer need to be isolated. At the FDIC, former Chairman Martin Gruenberg is expected to depart the day before the inauguration. That puts Republican Vice President Travis Hill in charge, at least on an interim basis.
“We expect Hill to come up with a proposal that clarifies that banks can engage in crypto activities and specifies when regulators must first approve an activity,” Jaret Seiberg, a financial policy analyst at TD Cowen, said in a note to clients. “It will also likely include strict deadlines for the FDIC to act.”
Last week, Hill outlined several pro-crypto policy ideas, arguing that the agency “stifled innovation and contributed to a public perception that the FDIC is out of business if institutions are interested in anything related to blockchain or technology.” of distributed accounting”. He also argued that the FDIC had instigated an inappropriate campaign to cut the banking ties of crypto companies and those involved with them.
“I still think a much better approach would have been, and continues to be, for agencies to clearly and transparently describe to the public what activities are legally permitted and how to conduct them in accordance with safe and sound standards,” Hill said. “And if regulatory approvals are needed, they must be acted upon in a timely manner, which has not been the case in recent years.”
Read more: US banking should pave the way for cryptocurrencies, suggests Republican taking reins at FDIC
The FDIC’s restrictions on banks’ involvement in cryptocurrencies are not rules, but rather guidelines that can be more easily reviewed. However, there are two other agencies that share the functions of regulating American banks: the Office of the Comptroller of the Currency (OCC) and the Federal Reserve.
In fact, the OCC has been led by an interim administrator, Michael Hsu, for more than three years. Hsu has said he awaits the new election to replace him, which is as simple as the president directing his Treasury secretary to name a “first deputy comptroller,” a designation that automatically inserts that person into the role of acting comptroller under OCC rules. Trump had once installed Brian Brooks in that acting role, where Brooks, a former executive at Coinbase and other cryptocurrency companies, quickly moved to make way for the banking system for cryptocurrency companies, including through a novel approach to constitution.
At the Federal Reserve, the board’s vice chairman for supervision, Michael Barr, said he will resign at the end of February. Barr had played that role when the Federal Reserve warned the banks it oversees that any crypto activity had to be meticulously directed by the regulator before the institutions could move forward. His departure potentially leaves a vacancy for a future vice president who wants to encourage lenders to enter digital assets.
With the old guard heading out of the SEC and banking agencies, some of the main limitations of crypto banking are especially vulnerable.
However, Seiberg had added a bit of Washington wisdom to his note: “Our warning, with a nod to Mike Tyson, is that everyone has a plan until they get punched in the face.”
