In the United States, lawmakers are discussing the legality of Gary Gensler's Staff Accounting Bulletin (SAB) 121, which imposed regulations on firms offering crypto custody services. The debate centers on the potential impact of this bulletin on traditional financial institutions looking to enter the crypto custody space.

Introduced in 2022, the SEC's Staff Accounting Bulletin 121 mandated that firms wishing to provide crypto services must reflect these assets on their financial statements. This decision sparked criticism from the crypto community, with concerns raised about the regulatory constraints imposed by the financial watchdog on the burgeoning sector.

Critics argue that the requirement imposed by SAB 121 places a significant burden on firms seeking to engage in crypto-related services, potentially stifling innovation and growth in the industry. The ongoing debate surrounding this bulletin has prompted US legislators, including Sen. Cynthia Lummis, Rep. Mike Flood, and Rep. Wiley Nickel, to propose resolutions aimed at nullifying Gary Gensler's directive and challenging the SEC's regulatory approach.

Lawmakers are seeking to officially express disapproval of the SEC's actions, questioning the agency's authority to implement such policies without prior congressional approval. The contention lies in the perception that the SEC bypassed the necessary legislative processes in enforcing SAB 121, leading to accusations of regulatory overreach and lack of transparency in decision-making.

Despite the backlash, Gary Gensler and his SEC colleagues defend SAB 121, emphasizing its role in safeguarding investor interests and ensuring accountability in the management of custodial assets. The rationale behind this policy is to enhance transparency and protect user funds by addressing liabilities associated with crypto holdings on a company's financial records.

The introduction of SAB 121 follows incidents like the FTX collapse, prompting a reevaluation of crypto regulations in the United States. While regulatory bodies argue that these measures are necessary for market stability, industry leaders, including Coinbase, advocate for clearer guidelines to foster investment and innovation within the country's crypto ecosystem.