Ahead of a crucial Congressional hearing on SEC oversight, Republican lawmakers have intensified their call for the repeal of the contentious Staff Accounting Bulletin No. 121 (SAB 121). The demand comes as SEC Chair Gary Gensler prepares to testify before the House Financial Services Committee.
On September 23, over 40 members of Congress sent letters to key financial regulators, including Gensler, urging the repeal of SAB 121. The letters argue that the SEC’s 2022 bulletin on crypto custody imposes burdensome and flawed requirements that could hinder consumer protection and innovation in the financial sector.
SAB 121, issued in April 2022, is an interpretive guidance from the SEC, not an official rule. It outlines that U.S. banks holding crypto assets must classify these assets as liabilities on their balance sheets and maintain a corresponding offset. Critics argue that this approach deviates from established accounting practices, potentially exposing consumers to greater risk and discouraging banks from offering crypto custody services.
The letter to Gensler, signed by House Financial Services Committee Chairman Patrick McHenry and crypto advocate Senator Cynthia Lummis, criticizes SAB 121 for complicating the accounting process and for its potential to deter U.S. crypto startups due to reduced banking options.
The SEC’s approach has drawn significant backlash from both the crypto industry and Congress. Critics claim that SAB 121 was introduced without adequate consultation with other regulators and that its implementation could harm the U.S. crypto market’s growth. The letter accuses the SEC of using bureaucratic maneuvers to bypass the necessary notice and comment procedures required by the Administrative Procedure Act.
Efforts to amend or repeal SAB 121 have so far been unsuccessful. Although a bipartisan resolution to rescind the bulletin passed both the Senate and House, President Joe Biden vetoed the bill in June. Subsequent attempts to override the veto failed.
Recent developments include reports that Bank of New York Mellon, a major U.S. custodian, has received an exemption from SAB 121 requirements, fueling allegations of regulatory favoritism. The controversy surrounding SAB 121 reflects broader concerns about what some in the crypto industry view as a regulatory crackdown on digital assets, often referred to as Operation Choke Point 2.0.
As the debate continues, the outcome of today’s hearing could influence the future regulatory landscape for cryptocurrencies in the U.S., potentially signaling a shift towards more favorable conditions for crypto businesses.
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