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In a concerted effort, members from both sides of the United States Congress have rallied against the Securities and Exchange Commission’s (SEC) Staff Accounting Bulletin 121 (SAB 121). This rare bipartisan agreement focuses on the bulletin, which mandates banks to include customers’ crypto assets on their balance sheets. Representatives, including Senators Cynthia Lummis and Kirsten Gillibrand, Patrick McHenry, French Hill, Ritchie Torres, Mike Flood, and Wiley Nickel, spearhead this initiative.
They argue that this requirement not only sets a distinct treatment for crypto holdings compared to other assets but also dampens the enthusiasm of regulated banks to serve as crypto custodians. Consequently, they have issued a memo to key financial authorities, urging a reevaluation and clarification of SAB 121’s enforceability, especially in light of a recent Government Accountability Office (GAO) finding.
Congress Concerned Over SEC’s Crypto Regulation
The GAO’s involvement stems from a letter by Senator Lummis to the U.S. Comptroller General in August 2022. The GAO’s evaluation centered on whether SAB 121 falls under the category of a ‘rule’ defined by the Congressional Review Act. According to this act, any agency rule must undergo a review process involving reporting to the comptroller general and both chambers of Congress, coupled with a provision for Congress to disapprove the rule.
This scrutiny has led to concerns among Congress members. They fear enforcing SAB 121 without proper regulatory compliance could set a dangerous precedent. It might pave the way for regulatory agencies like the SEC to gain control over institutions beyond their authorized purview, bypassing established legislative processes such as the Administrative Procedure Act.
Industry Reacts to SEC’s Crypto Policy
The resistance to SAB 121 isn’t confined to the halls of Congress. In June 2022, a group of five senators, recognizing the potential implications of this ‘backdoor regulation,’ expressed their concerns to SEC Chair Gary Gensler. Moreover, during Gensler’s appearance before the House Financial Services Committee in September, Representative Mike Flood voiced his disapproval of the bulletin’s approach.
These legislative actions reflect a growing sentiment in the financial and crypto industries against regulations perceived as overreaching or lacking clarity. Hence, this challenge to SAB 121 underscores a pivotal moment in the ongoing dialogue between regulatory bodies and the burgeoning world of digital assets.
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