US Congress Members Push to Overturn SEC Rule Impacting Bank Custody of Cryptocurrency Assets

Representatives such as Mike Flood, Wiley Nickel, and Senator Cynthia Lummis are leading efforts to nullify the Staff Accounting Bulletin 121 (SAB 121) issued by the US Securities and Exchange Commission (SEC). This accounting regulation poses challenges for banks seeking to hold their clients' cryptocurrency assets, as it requires these assets to remain on the banks' balance sheets.

These politicians are utilizing the Congressional Review Act to challenge the SEC's guidelines, aiming to establish that SAB 121 lacks legal authority. The current regulations suggest that banks must include customers' cryptocurrency assets on their balance sheets, indicating their value and necessitating capital reserves against these assets.

Additionally, lawmakers argue that these rules deter authorized banks from acting as custodians of cryptocurrency and treat these holdings differently from other asset types. This argument was supported in a November 2023 memo drafted by several Congress members, urging financial authorities to provide clear guidance or declare SAB 121 unenforceable.

The memo followed the Government Accountability Office (GAO) advocating for Congressional review of the SEC directives. Senator Lummis expressed concerns about consumer protection and the potential hindrance to regulated banks' ability to securely safeguard American financial assets, stating, "SAB 121 has significant implications, and the SEC should have engaged federal banking regulators and the public for feedback before implementing this directive."

The Congressional effort to overturn SAB 121 stems from criticism against the SEC for implementing these guidelines without consulting financial regulators or adhering to the mandatory process of soliciting public feedback. Congressman Flood emphasized that Congress should monitor regulatory bodies to prevent overreach.