Bipartisan Push Against SEC's SAB 121

A bipartisan coalition of lawmakers has urged the Biden Administration to abandon its plan to veto the Congressional proposal to repeal the SEC's controversial Staff Accounting Bulletin No. 121 (SAB 121).

The May 30 letter called on the administration to urge the SEC to rescind the standard or sign the Congressional proposal to repeal the accounting standards into law.

SAB 121, published on March 31, 2022, requires entities that safeguard digital assets for customers to consolidate them onto their balance sheets and provide specific disclosures.

According to the letter, this requirement diverges from the accounting treatment of other asset classes. It exposes consumers to heightened risks by discouraging regulated financial institutions from managing digital assets.

Lawmakers' Concerns

The lawmakers emphasized that the Government Accountability Office (GAO) has classified SAB 121 as a rule under the Administrative Procedure Act (APA) and the Congressional Review Act (CRA).

The letter criticized the SEC for bypassing the traditional notice and comment rulemaking process, which allowed the SEC to avoid a total commission vote and prevented stakeholders from providing input.

The letter highlighted that revisiting and rescinding staff accounting bulletins is within the SEC's authority, citing that most over the past three decades have involved revisions or rescissions. Despite this precedent, SEC Chair Gary Gensler has remained steadfast in maintaining the guidance of SAB 121 to the industry's detriment.

Bipartisan Support

The letter's signatories, which include Senators Cynthia Lummis and Representatives Patrick McHenry, Andy Barr, Tom Emmer, Mike Flood, French Hill, Dan Meuser, Wiley Nickel, and Ritchie Torres, argued that the bipartisan support for H.J.Res.109 -- a resolution expressing congressional disapproval of SAB 121 -- demonstrates widespread opposition to the rule.

The lawmakers urged President Biden to either sign the resolution into law or collaborate with the SEC to revoke the guidance.

"Congress has spoken: the SAB 121 CRA vote sent a clear, bipartisan message to the SEC that this misguided policy is harmful to consumers and staff guidance was inappropriate to impose policy changes and must be overturned," the letter stated.

Regulatory Debate

The ongoing debate over SAB 121 reflects broader tensions regarding the regulatory treatment of digital assets and the role of financial institutions in managing these emerging financial instruments.

House Financial Services Committee Chairman Patrick McHenry (R-NC) and Senator Cynthia Lummis (R-WY) led a letter urging President Joe Biden to reconsider vetoing the bipartisan Congressional Review Act (CRA) resolution overturning Securities and Exchange Commission (SEC) Staff Accounting Bulletin 121 (SAB 121).

The SAB 121 prohibits highly regulated financial firms from custodying Bitcoin and crypto.

Political Implications

As reported by Crypto Briefing, a veto from Biden was almost inevitable after the US President expressed his intentions, citing the need to protect investors and the financial system. Should a presidential veto occur, Congress would need a two-thirds majority to override it.

However, recent developments in the US regulatory landscape might increase the chances of Biden deciding not to veto the bill.

According to Bloomberg ETF analyst Eric Balchunas, the SEC's sudden shift toward a spot Ethereum ETF approval was motivated by "political issues."

Moreover, presidential candidate Donald Trump has recently displayed a crypto-friendly approach in his campaign, and Biden might want to stay on the good side of this electorate share.