In a significant move, members of the United States Congress are taking steps to challenge the U.S. Securities and Exchange Commission’s (SEC) Staff Accounting Bulletin 121 (SAB 121), which imposes restrictions on banks holding their client’s cryptocurrency assets. On February 1, 2023, Representatives Mike Flood, Wiley Nickel, and Senator Cynthia Lummis introduced a resolution under the Congressional Review Act aimed at repealing SAB 121, thereby nullifying its legal effect and challenging the SEC’s approach to crypto asset regulation.
SAB 121 mandates that banks must include the crypto assets they hold for customers on their balance sheets, a requirement that necessitates maintaining adequate capital against these assets. This directive has been met with criticism from lawmakers who argue that it deters regulated banks from serving as custodians for cryptocurrencies and discriminates against crypto holdings compared to other asset types.
The push against SAB 121 gained momentum in November 2023, when a group of Congress members penned a memo to key financial authorities, including the Federal Deposit Insurance Commission’s chair, urging for clarification or action to affirm that SAB 121 is not enforceable. This call to action was bolstered by a finding from the Government Accountability Office (GAO), which supported a congressional review of SAB 121 following a request from Senator Lummis in August 2022 to assess the bulletin’s status as a rule under the Congressional Review Act.
Senator Lummis has voiced concerns about the potential implications of SAB 121 on consumer protection and the ability of regulated financial institutions to securely manage Americans’ financial assets. She criticized the SEC for implementing SAB 121 without seeking input from federal banking regulators or the public, a move she believes circumvented necessary procedural safeguards.
Echoing Lummis’s sentiments, Representative Flood criticized the SEC’s unilateral action in issuing SAB 121, highlighting the lack of consultation with prudential regulators and the absence of a notice-and-comment process typically required for such regulatory measures. Flood emphasized the importance of congressional oversight as a counterbalance to regulatory overreach, framing the resolution to repeal SAB 121 as a crucial step in ensuring regulatory actions are subject to appropriate checks and balances, particularly in the rapidly evolving cryptocurrency sector.
 Staff Accounting Bulletin 121 (SAB 121),){kind=link}