Four major financial groups have reached out to President Joe Biden, urging him to support a Congressional resolution that would overturn the Securities and Exchange Commission's (SEC) contentious "Staff Accounting Bulletin 121" (SAB 121). The American Bankers Association, Bank Policy Institute, Financial Services Forum, and Securities Industry and Financial Markets Association (referred to as "Associations") have voiced their backing for H.J. Res. 109, which seeks to invalidate SAB 121.

This resolution, put forth by a bipartisan coalition of legislators, garnered significant backing in Congress, passing with a 60-38 vote in the Senate and a 228-182 vote in the House. The Associations argue that SAB 121, issued by the SEC in March 2022 without adequate consultation or public input, presents substantial hurdles for publicly traded companies that hold digital assets on behalf of their clients.

According to SAB 121, these companies must report the fair value of customer-held digital assets on their financial statements, contrary to the conventional accounting practice of treating held assets as off-balance sheet items. This requirement effectively impedes regulated banking institutions from providing digital asset custody services on a large scale, as they would be subjected to stricter capital, liquidity, and other regulatory requirements compared to non-bank competitors.

The Associations assert that by obstructing regulated banks from offering digital asset safeguarding services, SAB 121 ultimately detrimentally impacts investors, clients, and the financial system overall. It restricts the market to custody providers that lack the same level of legal and supervisory safeguards as federally-regulated banks. Furthermore, SAB 121 obstructs banks from exploring responsible applications for distributed ledger technology (DLT) and prevents regulated broker-dealers from providing custody services due to the net capital rule (Rule 15c3-1).

In a joint communication to the SEC in February 2024, the Associations emphasized that SAB 121 has impeded their member banks' ability to introduce certain digital asset products and services to the market at a significant scale over the past two years. They argue that SAB 121 marks a notable departure from the traditional accounting treatment for custodial assets and jeopardizes the industry's capacity to offer secure custody of digital assets to customers.

The Associations have respectfully urged President Biden to endorse H.J. Res. 109, which would revoke SAB 121 and empower regulated banking institutions to provide digital asset custody services without encountering economically burdensome consequences. They believe that this step is crucial to safeguard investors, clients, and the stability of the financial system.