The House and Senate Republicans alleged that by issuing SAB 121, the SEC avoided the Administrative Procedure Act’s notice and comment rulemaking procedure.
Over 40 U.S. Republicans have urged the Securities and Exchange Commission (SEC) to repeal its “disastrous” rule, Staff Accounting Bulletin (SAB) No. 121. This request follows a bipartisan repeal bill that was vetoed.
In a letter dated Sept. 23, addressed to SEC Chair Gary Gensler, House Financial Services Committee Chair Patrick McHenry, Senator Cynthia Lummis, and 40 other lawmakers argued that SAB 121 disrupts cryptocurrency custody rules, weakens consumer protections, and stifles financial innovation.
The bulletin mandates that entities reporting to the SEC, which hold cryptocurrencies in custody, must record these assets as liabilities on their balance sheets.
The 42 politicians criticized the rule for being issued without consulting “prudent regulators” and claimed that its accounting approach “deviates from established accounting standards.”
They argued that it misrepresents the custodian’s legal and financial obligations and could expose consumers to risk of loss.
The letter further alleged that the SEC circumvented the Administrative Procedure Act’s required notice and comment process by issuing the rule as staff guidance.
“Rescinding SAB 121 is the only appropriate action and well within the SEC’s authority,” the politicians stated.
House Democrat Wiley Nickel had previously expressed concerns that SAB 121 would prevent U.S. banks from holding cryptocurrency exchange-traded products at scale, leading to a “concentration risk” by shifting control to non-bank entities.
This letter was sent just before the House Financial Services Committee’s hearing with the SEC on Sept. 24.
The politicians also criticized the SEC’s Office of Chief Accountant for allegedly working with specific institutions to bypass the balance sheet reporting requirements, potentially creating inconsistency in the industry.
During a Sept. 17 hearing in the Wyoming legislature, it was revealed that Bank of New York, the largest U.S. custodian bank, was reportedly exempted from SAB 121.
The majority of those supporting the letter were Republican members from the House Financial Services and Senate Committee on Banking, Housing, and Urban Affairs.
Notable signatories included House Reps French Hill, Tom Emmer, and Senators Bill Hagerty and Tim Scott.
In June, President Joe Biden vetoed the SAB 121 repeal bill despite its bipartisan support in both the House and Senate.
A subsequent attempt to override the veto on July 10 fell short in the House by 60 votes, preventing it from advancing to the Senate.
