Bipartisan Opposition to SEC’s Crypto Rule SAB 121

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In a significant display of bipartisan agreement, US Congress members are challenging the Securities and Exchange Commission’s (SEC) Staff Accounting Bulletin 121 (SAB 121). This bulletin requires banks to list customers’ cryptocurrency assets on their balance sheets, stirring controversy over its legality.

The charge against SAB 121 is led by Senators Cynthia Lummis and Kirsten Gillibrand, alongside Representatives Patrick McHenry, French Hill, Ritchie Torres, Mike Flood, and Wiley Nickel. These lawmakers have collectively voiced their concerns in a written statement dated April 11, 2022.

The claim that SAB 121 unfairly mandates custodians to report liabilities and corresponding assets on balance sheets calculated at the fair value of customer-held digital assets is central to the bipartisan opposition. This requirement, they argue, was established without adequate consultation with relevant authorities.

Legal Concerns Raised:

The lawmakers assert that SAB 121 falls under the scope of the Administrative Procedure Act (APA) and criticize the SEC for not submitting the bulletin to the Government Accountability Office (GAO) or Congress. They emphasize that the lack of publication in the Congressional Record, as mandated by the Congressional Review Act, renders SAB 121 illegal and unenforceable.

Potential Implications:

The representatives’ argument, if upheld, could significantly impact financial regulatory practices. The National Credit Union Administration and Federal Banking Agencies would be advised not to compel banks and credit unions to comply with SAB 121. This exemption would relieve these institutions from recording a balance sheet offset for each liability concerning digital asset custody.

This bipartisan effort highlights the ongoing debate over cryptocurrency regulation and the balance between innovation and financial oversight. The SEC’s response and any subsequent legislative or legal actions will be pivotal in shaping the future landscape of digital asset management in the United States.