Republicans Call for Repeal of SAB 121 Ahead of SEC Oversight Hearing
Republican lawmakers are ramping up pressure on the U.S. Securities and Exchange Commission (SEC) to repeal a controversial rule affecting banks that deal with cryptocurrency. A group of over 40 members of Congress recently sent signed letters to the heads of four major U.S. regulators, urging them to address a particularly contentious SEC bulletin from 2022 known as SAB 121.
The letters, including one addressed to SEC Chair Gary Gensler, were sent just before Gensler and his fellow SEC commissioners were set to participate in a U.S. House Financial Services Committee hearing on the agency’s oversight. The primary focus of the letters is to push for the repeal of Staff Accounting Bulletin No. 121 and to encourage collaboration among regulators on the issue.
The call for the repeal of SAB 121 has gained support from prominent figures such as House Financial Services Committee Chairman Patrick McHenry and Senator Cynthia Lummis, a vocal advocate for cryptocurrency. Republicans from both the House Financial Services Committee and the Senate Banking, Housing, and Urban Affairs Committee have signed the letters, emphasizing the need to address what they see as harmful implications of the SEC bulletin.
What is SAB 121 and Why is it Controversial?
SAB 121, issued by the SEC in April 2022, is a staff bulletin that provides interpretive guidance on cryptocurrency custody for U.S.-regulated banks. The bulletin outlines specific rules for banks offering crypto custody, including the requirement to reflect cryptocurrencies as liabilities on their balance sheets and to hold corresponding offsets based on the fair value of customers’ digital assets.
Critics of SAB 121 argue that the SEC’s approach deviates from established accounting standards and imposes unnecessary burdens on financial institutions providing crypto custody services. By discouraging banks from engaging with the crypto industry due to the high costs associated with compliance, the bulletin is seen as hindering consumer protection and stifling financial innovation in the U.S.
The Impact of SAB 121 on the Crypto Industry
The stringent requirements outlined in SAB 121 have had a significant impact on U.S.-based crypto firms that rely on banking partners to facilitate their operations. As the number of banks willing to work with crypto companies diminishes, these startups face challenges in accessing essential financial services, ultimately limiting the growth potential of the U.S. crypto industry.
Efforts to Revise SAB 121 and Congressional Response
Previous attempts to revise SAB 121 have been met with resistance, with industry organizations and lawmakers advocating for a more lenient approach to crypto custody regulations. In February, four industry groups urged the SEC to soften the provisions of the bulletin, highlighting concerns about its negative implications for the industry.
In May, a bipartisan resolution to repeal SAB 121 was passed in the Senate and the House of Representatives but was subsequently vetoed by President Joe Biden in June. Despite efforts to override the veto, the bill fell short of the required two-thirds majority in the House, prolonging the debate over the controversial SEC rule.
New Developments and Potential Reforms
In recent weeks, reports have surfaced suggesting that the SEC is exploring alternative approaches to SAB 121, including providing exemptions to certain financial institutions. The Bank of New York Mellon, the largest custody bank in the U.S., was reportedly granted an exemption from the rule, raising questions about the SEC’s selective enforcement of regulations.
Critics of SAB 121, including prominent figures in the crypto industry and Congress, have raised concerns about the lack of transparency and consistency in the application of the rule. Calls for the repeal of SAB 121 have intensified, with lawmakers urging the SEC to reconsider its stance on crypto custody regulations and work towards a more inclusive approach that supports innovation and consumer protection.
The Future of Crypto Regulation in the U.S.
The ongoing debate over SAB 121 and its implications for the crypto industry reflects broader challenges in regulating digital assets in the U.S. As policymakers grapple with balancing financial stability and innovation, the role of federal agencies like the SEC in shaping the regulatory landscape for cryptocurrencies remains a topic of contention.
The push for regulatory reforms and the repeal of controversial rules like SAB 121 signal a growing recognition of the need for a more nuanced approach to crypto regulation that supports industry growth and protects consumers. As the SEC continues to face scrutiny over its handling of crypto custody regulations, stakeholders across the financial sector are closely monitoring developments that could shape the future of the U.S. crypto industry.