U.S. lawmakers challenge SEC on crypto asset regulation

Congress members are seeking to remove the Staff Accounting Bulletin 121 (SAB 121) from the United States Securities and Exchange Commission (SEC). This bulletin limits banks wishing to hold their clients’ cryptocurrency assets, requiring them to keep their investors’ assets on the balance sheet. 

U.S. congresspeople Mike Flood (R-NE), Wiley Nickel (D-NC), and Senator Cynthia Lummis (R-WY) introduced a resolution under the Congressional Review Act (CRA) to repeal the SEC’s SAB 121 on Feb. 1, 2023,  that would formally disapprove of the accounting rule and conclude that it has no legal force.

Chair @GaryGensler ’s SAB 121 has virtually blocked banks from serving as custodians of digital assets. Today, @RepWileyNickel , @SenLummis , and I introduced resolutions to repeal @SECGov 's terrible bulletin.

SAB 121’s days are numbered – it’s time for it to go! ️ pic.twitter.com/jTQDdbMm3I

— Rep. Mike Flood (@USRepMikeFlood) February 1, 2024

SAB 121 states that the crypto assets of bank customers should be held on the bank’s balance sheet, reflecting the value of the assets and requiring capital to be maintained against them. U.S. lawmakers have argued that it jeopardizes the willingness of regulated banks to act as crypto custodians and treats crypto holdings differently than other assets.

In November 2023, several members of the United States Congress submitted a memo urging key financial authorities, including the chair of the board of the Federal Deposit Insurance Commission, to provide guidance or take action clarifying that the SEC SAB 121 is not enforceable following a Government Accountability Office (GAO) finding.

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The GAO concluded that the congressional review of the SEC’s SAB 121 is warranted , following a letter from Senator Cynthia Lummis to the U.S. Comptroller General in August 2022. The review centered on determining if the bulletin meets the criteria for classification as a rule under the Congressional Review Act.

Senator Lummis expressed significant worries about how the SEC’s SAB 121 bulletin might affect consumer protection and hinder well-regulated financial institutions from securely safeguarding Americans’ hard-earned financial assets. She said:

“SAB 121 has massive implications, and the SEC should have received feedback on it from the federal banking regulators and the public before implementing this legally binding directive.”

In support of Senator Lummis’ statement, Congressman Flood criticized the SEC for issuing SAB 121 without consulting with prudential regulators or going through the notice-and-comment process required for such cases. He emphasized that Congress should serve as a check in the face of overreach by a regulator.

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