House Budget Targets SEC's SAB 121

An upcoming House Appropriation budget could prevent the US SEC from implementing its controversial Staff Accounting Bulletin 121 (SAB 121). This move has sparked widespread attention in the financial and crypto communities.

FOX Business reporter Eleanor Terrett broke the news. She reported that the bill would prohibit the SEC from using appropriate funds to implement the rule. Appropriations allow agencies to incur obligations and pay the US Treasury for set purposes.

Policy Rider Explained

One policy rider in the budget states:

"Prohibits the SEC from implementing or enforcing Staff Accounting Bulletin No. 121, which implements harmful digital asset requirements."

It remains to be seen whether the budget will succeed in its current form. The House, currently with a Republican majority, is likely to pass the appropriation bill in a June 5 hearing. However, the Senate, which has a Democratic and Independent majority, must negotiate its appropriation bill against the House's.

Senate's Potential Response

According to Terrett, Democratic support for an earlier resolution with the same goal—H.J. Res. 109—suggests that the Senate may leave the rider in the budget. The bill otherwise aims to provide the SEC with $2 billion in total funding in 2025, as opposed to the $2.59 billion requested by SEC chair Gary Gensler.

Criticism from Within the SEC

SEC commissioner Mark Uyeda has supported withdrawing SAB 121. He described it as "unfortunate" that US President Joe Biden vetoed H.J. Res. 109.

Uyeda added that the SEC's decision to introduce SAB 121 through a regulatory edict bypassed rulemaking under the Administrative Procedure Act (APA). This decision, he argued, "undercut our system of checks and balances against an overreaching administrative state."

Uyeda's complaint echoes earlier criticism from fellow SEC commissioner Hester Peirce, who said in 2022 that a bulletin was not the "appropriate vehicle" for relevant change. Uyeda and Peirce objected to procedural shortcomings rather than SAB 121's exact content. Peirce mentioned that the decision itself "may be appropriate."

Impact of SAB 121

SAB 121 requires financial institutions and other firms that safeguard customers' digital assets to record the assets on their balance sheets. This approach to accounting and disclosure imposes high capital and liquidity costs on those companies.

The US House and Senate voted to pass H.J. Res. 109 and overturn the bulletin, concluding with the Senate passing the resolution on May 16.

However, on May 31, Biden vetoed the resolution over concerns that it would undermine the SEC and put consumers and investors at risk.

Biden's veto received pushback as House lawmakers, the American Bankers Association, and other groups urged him to sign the resolution into law.