An upcoming House Appropriation bill could block the U.S. Securities and Exchange Commission (SEC) from enforcing its contentious Staff Accounting Bulletin 121 (SAB 121), amid ongoing budget negotiations. This potential prohibition has garnered significant attention, especially with SEC Commissioner Mark Uyeda advocating for the withdrawal of SAB 121.

Reported by FOX Business journalist Eleanor Terrett on June 4, the proposed bill aims to restrict the SEC from using allocated funds to enforce SAB 121. Appropriations allow federal agencies to incur obligations and make payments from the U.S. Treasury for designated purposes. A key rider in the budget bill states:

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

The fate of the budget bill remains uncertain. While the Republican-majority House is expected to pass the bill in a hearing on June 5, the Democratic and Independent-majority Senate will need to reconcile its own version of the appropriation bill with the House's proposal.

Terrett indicated that there might be Senate support for retaining the rider targeting SAB 121, referencing Democratic backing for a similar earlier resolution, H.J. Res. 109. This resolution, which aimed to overturn SAB 121, was passed by both the House and Senate but was vetoed by President Joe Biden on May 31.

Commissioner Mark Uyeda has been vocal about his opposition to SAB 121, describing it as an unfortunate move bypassing the Administrative Procedure Act (APA) and undermining the checks and balances of the administrative state. Uyeda's stance is echoed by fellow SEC Commissioner Hester Peirce, who criticized the procedural approach rather than the content of SAB 121, suggesting that a bulletin was not the appropriate vehicle for such a regulatory change.

SAB 121 mandates that financial institutions and firms safeguarding customers' digital assets must record these assets on their balance sheets. Critics argue that this requirement imposes substantial capital and liquidity costs on these companies. The bulletin's approach to accounting and disclosure has been deemed excessive by some industry stakeholders, including the American Bankers Association, which has urged the administration to reconsider.

The appropriations bill also proposes providing the SEC with $2 billion in funding for 2025, a significant reduction from the $2.59 billion requested by SEC Chair Gary Gensler. The proposed funding cut, along with the rider targeting SAB 121, highlights the contentious nature of the budget negotiations and the broader debate over regulatory oversight in the financial sector.

As the legislative process unfolds, the outcome of the appropriation bill and the fate of SAB 121 remain critical issues for the blockchain and digital asset sectors, with potential implications for financial institutions and their approach to digital asset management.