A bipartisan group of Congressional lawmakers introduced a resolution last week that seeks to to overturn the U.S. Securities and Exchange Commission’s (SEC) Staff Accounting Bulletin (SAB) 121 rule.
SAB 121, issued in 2022, sets accounting and disclosure rules for entities that perform crypto asset custodial activities. The resolution to overturn it follows a review by the Government Accountability Office (GAO) confirmed that SAB 121 has legal effect relating to public companies, including banks and trust companies, that have capital requirements tied to accounting standards.
The lawmakers say it has serious implications for consumers and banks by confusing the distinction between customer assets and bank assets. They add that it threatens the foundation of essential custody services and increases the bankruptcy risk for consumers.
“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,” U.S. Sen. Cynthia Lummis (R-WY), one of the sponsors of the resolution, said. “I have serious concerns over the impact of this bulletin on consumer protection and ensuring well-regulated financial institutions are able to provide safe custody for Americans’ hard-earned financial assets.”
The resolution is also sponsored by U.S. Reps. Wiley Nickel (D-NC) and Mike Flood (R-NE).
“Gary Gensler and the Security and Exchange Commission continue to overstep their authority, and it’s time for Congress to weigh in on Staff Accounting Bulletin No. 121,” Nickel said. “I’m proud to lead this bipartisan, bicameral effort with Senator Lummis and Congressman Flood pushing back against the SEC’s untenable approach on digital assets.”
Flood added that the ruled moved forward with adequate feedback.
“The SEC issued SAB 121 without conferring with prudential regulators despite the accounting standard’s effects on financial institutions’ treatment of custodial assets, and the SEC issued SAB 121 without going through the notice-and-comment process. In the face of overreach by a regulator, it is the role of Congress to serve as a check,” Flood said.
The resolution is supported by several industry groups, including the American Bankers Association, the Bank Policy Institute, the Financial Services Forum, and the Securities Industry and Financial Markets Association (SIFMA).
“SAB 121 has disincentivized banks from providing custodial services for digital assets. We do not disagree with the need for regulatory oversight, but the process should be deliberate and comprehensive to avoid unintended knock-on effects. Banks are already subject to extensive prudential rules and oversight and have deep expertise in providing safe custody of a wide variety of assets. SIFMA has consistently supported congressional action to bring attention to this issue and restore the ability for banks to provide such services for their clients, and we thank Senator Lummis and Congressmen Flood and Nickel for their leadership today,” Kenneth Bentsen, Jr., president and CEO of SIFMA, said.