Senator Lummis and a coalition of House members are advocating for the repeal of the SEC’s Staff Accounting Bulletin 121, a move aimed at easing the process for companies to hold crypto assets on behalf of their clients.
This effort seeks to nullify the contentious accounting guideline issued by the U.S. Securities and Exchange Commission, which imposes constraints on firms intending to safeguard their customers’ cryptocurrency holdings. Senator Cynthia Lummis (R-Wyo.) along with Representatives Wiley Nickel (D-N.C.) and Mike Flood (R-Neb.) introduced identical resolutions in both the Senate and the House of Representatives, proposing the formal disapproval of the accounting standard and asserting its lack of legal authority.
SEC’s Stance on Crypto Accounting
The SEC’s 2022 Staff Accounting Bulletin No.121, known as SAB 121, stipulates that companies holding their clients’ cryptocurrencies should reflect these assets on their own financial statements. This requirement could compel banks and other entities wishing to custody crypto to maintain what they perceive as a burdensome amount of capital to mitigate associated risks. The cryptocurrency industry strongly opposed this directive.
When a federal regulator issues staff guidance, it typically serves as interpretation advice for existing policies. However, if an agency misuses such guidance to establish new regulations, it often draws criticism from Congress. Last year, the Government Accountability Office concluded that the SEC should have presented this policy to lawmakers and followed the necessary procedures when enacting a new rule. The lawmakers utilized the Congressional Review Act to introduce the resolution with the aim of overturning the SEC’s directive. Representatives for the SEC have yet to respond to inquiries regarding the latest opposition to the bulletin.
Representative Flood remarked, “The SEC issued SAB 121 without consulting prudential regulators regarding its impact on financial institutions’ treatment of custodial assets, and it bypassed the notice-and-comment process. In the face of regulatory overreach, it is Congress’s responsibility to act as a check.” Crypto advocacy groups like the Chamber of Digital Commerce have commended this legislative effort.