The U.S. Securities and Exchange Commission (SEC) is encountering mounting pressure from lawmakers and state attorneys general to reconsider its regulatory control over the crypto industry. The calls for the SEC to back off come from both inside and outside the U.S. House, as concerns over the agency's actions and enforcement have grown.

One particular cause for contention is the Staff Accounting Bill 121 (SAB 121), which has been in effect since March 2022, prohibiting banks from acting as custodians of digital assets. The U.S. House Financial Services Committee voted on Thursday to appeal this bill, questioning the SEC's decision to introduce it without consulting prudential regulators who are experts in regulating bank custody. Rep. Mike Flood (R-NE) expressed concern over this oversight, calling it significant.

Furthermore, in October, the Government Accountability Office raised issues with how SAB 121 was enacted, as the SEC failed to submit a report to Congress. This has led to criticism regarding the bill's use as a substitute for concrete regulatory guidance, instead of providing clear rules for the industry.

During the House committee meeting, Rep. Maxine Waters (D-CA) highlighted the intention behind SAB 121 as a means to protect investors from any mishandling of customer crypto assets by custodians. She specifically referred to the collapse of FTX, where billions of crypto assets had gone missing.

In a separate development, eleven U.S. state attorneys general, including those from Montana, Arkansas, Iowa, Mississippi, Nebraska, Ohio, South Dakota, and Texas, filed a joint amicus brief challenging the SEC's authority over crypto firms. Their filing argues that the SEC's enforcement action exceeds its delegated powers, urging the court to reject labeling crypto assets as securities without an investment contract. They posit that the SEC's exercise of undelegated authority puts state consumers at risk by preempting state statutes that are better suited to addressing the specific risks associated with non-securities products.

Amidst these growing challenges, SEC Commissioner Hester Peirce discussed the agency's stance during an ETHDenver event, stating that the SEC has been predominantly focused on enforcement rather than developing clearer rules. This has created uncertainty among developers in the crypto industry, as they try to navigate potential legal risks. Peirce emphasized the need for more transparent regulatory guidelines, allowing developers to focus on innovation rather than worrying about getting sued.

The pressure on the SEC to reconsider its oversight of the crypto industry continues to escalate. As lawmakers and state attorneys general push for clearer regulations and consultation with industry experts, the future direction of crypto regulation in the United States hangs in the balance.