US lawmakers challenge SEC on crypto asset regulation

U.S. Representatives Mike Flood, Wiley Nickel, as well as Senator Cynthia Lummis submitted similar resolutions to strip the SEC’s Accounting Bulletin of its force and effect.

Members of the United States Congress are seeking to remove the Staff Accounting Bulletin 121 (SAB 121) from the U.S. Securities and Exchange Commission (SEC). This bulletin limits banks wishing to hold their client’s cryptocurrency assets, requiring them to keep their investor’s assets on the balance sheet. 

Representatives Mike Flood, Wiley Nickel, as well as Senator Cynthia Lummis, introduced a resolution under the Congressional Review Act to repeal the SEC’s SAB 121 on Feb. 1, 2023, which 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 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’s SAB 121 is not enforceable following a Government Accountability Office (GAO) finding.

Related: US lawmakers push back on proposed CFPB rule, citing potential impact on crypto

The GAO concluded that the congressional review of the SEC’s SAB 121 is warranted following a letter from 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.

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 American’s 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 the statement from Lummis, 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.