Challenging SEC: U.S. Lawmakers and Crypto Asset Regulation

A group of U.S. congress members is pushing to eliminate the Staff Accounting Bulletin 121 (SAB 121) from the United States Securities and Exchange Commission (SEC). This bulletin places limitations on banks that wish to hold their clients’ cryptocurrency assets, requiring them to include these assets on their balance sheets. Congressman Mike Flood (R-NE), Congressman Wiley Nickel (D-NC), and Senator Cynthia Lummis (R-WY) introduced a resolution under the Congressional Review Act (CRA) on February 1, 2023, seeking to repeal the SEC’s SAB 121. If successful, this resolution would formally disapprove of the accounting rule and assert that it holds no legal force.

SAB 121 states that banks should include their customers’ crypto assets on their balance sheets, reflecting their value and requiring capital to be reserved against them. U.S. lawmakers argue that this rule discourages regulated banks from acting as custodians for cryptocurrencies and treats crypto holdings differently from other types of assets. In November 2023, several members of 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 SAB 121 is not enforceable. This memo followed a finding by the Government Accountability Office (GAO) that suggested a review of the SEC’s SAB 121 by Congress was warranted. The GAO’s recommendation came after Senator Cynthia Lummis sent a letter to the U.S. Comptroller General in August 2022, expressing concerns about SAB 121.

The review conducted by Congress aims to determine if SAB 121 meets the criteria to be classified as a rule under the Congressional Review Act. Senator Lummis is particularly worried about how this bulletin could impact consumer protection and hinder well-regulated financial institutions from securely safeguarding Americans’ hard-earned assets. She argues that the SEC should have sought feedback on SAB 121 from federal banking regulators and the public before implementing it as a legally binding directive. Congressman Flood supports Senator Lummis’ stance and criticizes the SEC for issuing SAB 121 without consulting prudential regulators or going through the required notice-and-comment process. He believes that Congress should act as a check against regulatory overreach.

The resolution introduced by the congress members aims to remove the limitations imposed by the SEC’s SAB 121. Critics argue that this bulletin discourages banks from engaging with cryptocurrencies, potentially hindering innovation and the development of the crypto market. Proponents of the SEC’s rule argue that it is necessary to ensure transparency and protect investors. The outcome of the resolution remains uncertain, but the push to repeal SAB 121 highlights the ongoing debate surrounding the regulation of cryptocurrencies and the role of government authorities in overseeing this emerging industry.