Accounting Standard Updates

Does Congress’ Proposed Action on Crypto Affect Insurers?

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Hot Take:

Hot Take

Congress has made its first serious foray into cryptocurrency oversight through the recent bipartisan legislation called The Responsible Financial Innovation Act. It’s a timely step that will likely get its share of feedback and rebuttal. Our series for insurers on the cryptocurrency marketplace (listen here and here) continues with this update on regulating and monitoring this volatile market. The proposed legislation offers new oversight information but is not anticipated to change the SAPWG direction with respect to the current accounting treatment in SSAP No. 2R – Accounting for Cryptocurrencies.

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Clearly, the popular buzz (and some would add, “darling”) in the investing world over the past several years has been the Wild West action in “crypto,” a description coined by SEC Chairman Gary Gensler. And, what a wild ride it has been. Since the 2009 introduction of the first Bitcoin cryptocurrency, over 4,000 currencies have emulated the digital asset concept, and the inventory continues to grow. It’s not been a ride for the squeamish by virtue of the chart below. The American investment markets live and breathe on the free market concept. Yet, without some outskirts of oversight come the reprobate intrusions that impact the individual consumer. In the absence of formal regulation, the SEC and chairman Gary Gensler have entered the oversight arena and led the cause to support more stringent crypto regulation.

Enter the federal government:

A first step in establishing a framework to regulate the cryptocurrency market was placed on the U.S. Senate congressional table via bipartisan legislation called The Responsible Financial Innovation Act (the Act). The objective of the legislation is to define and classify digital assets and then assign a federal agency home for their oversight. Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) introduced the bill in June 2022 to provide formal regulatory oversight of the crypto market.

So, what’s the rub?

The first step of the Act would classify all digital assets as commodities. The endorsed term for digital assets in the bill is ancillary assets. The formal definition of a digital asset is as follows:

A natively electronic asset that confers economic or proprietary access rights or powers and includes virtual currency and payment stablecoins.

The Act further defines virtual currency as a digital asset that is used primarily as a medium of exchange, unit of account, or a store of value and is not backed by an underlying financial asset.

Regulatory oversight of digital assets is then sanctioned to the Commodity Futures Trading Commission (CFTC), currently under the chairmanship of Rostin Behnam. Digital assets would not come under SEC oversight unless the digital asset owner is entitled to the privileges available to corporate investors. This would include items such as dividends, liquidation rights, or some form of financial interest in the issuer.

The Act’s delegation of oversight to the CFTC has not gone without concern. Some feel that handing regulation to the CFTC was purposeful because the agency is the smallest regulator carrying the smallest budget. Accordingly, they think it is an intentional attempt to assign responsibility to an agency that Congress has kept minimally funded for many years. Other fears are that the CFTC is taking on a complex and expanding sector it is not equipped to oversee thoroughly. Rebuttal thoughts note that fees received from digital issuers and participants will provide the funding for the CFTC’s added mission. Further, the CFTC will not be tied down with the complex security law regulations that the SEC faces on a daily basis.  It will be able to concentrate heavily on investor protection issues relating to fraud and market manipulation.

How does this event affect current insurance reporting?

The Statutory Accounting Principles Working Group (SAPWG) addressed reporting of cryptocurrencies in topic #2021-05 – SSAP No. 2R – Accounting for Cryptocurrencies, in which we provided insight in a June 2021 article (#2021-05). The proposed legislation offers new oversight information but is not anticipated to change the SAPWG direction with respect to the current accounting treatment.


Regardless of where eventual federal governance is placed for the proposed crypto legislation, it is an important step toward placing disclosures and boundaries around such a volatile market.