The U.S. House of Representatives is set to vote on a resolution proposed by Representatives Wiley Nickel (D-NC) and Mike Flood (R-NE) that would see a formal disapproval of the United States Securities and Exchange Commission’s (SEC) Staff Accounting Bulletin (SAB) 121. This controversial accounting bulletin, launched in April 2022, requires banks to list liabilities and corresponding digital assets on their balance sheets. Concerns have been raised regarding the ethicality of SAB 121, as the SEC failed to submit a Congressional report detailing the bulletin, leading to accusations of circumventing the rulemaking process.
During testimony, Rep. Flood criticized the SEC’s failure to collaborate with Federal banking agencies before introducing SAB 121. He emphasized the importance of consulting with registrants, accounting firms, standard-setting bodies, trade groups, and other agencies. Banking institutions seeking to enter the digital asset space have also expressed dissatisfaction with the policy, as it hinders their ability to serve as custodians for crypto products, including recently approved spot Bitcoin ETFs. The Securities Industry and Financial Markets Association president and CEO highlighted that SAB 121’s requirement for balance sheet recognition deviates from traditional asset custody treatment.
The Securities and Exchange Commission, chaired by Gary Gensler, has faced ongoing criticism for its stringent regulatory stance on cryptocurrencies. Under Gensler’s leadership, the SEC has taken legal action against multiple digital asset firms. Rep. Tom Emmer accused Gensler of violating the agency’s statutory mission, which includes protecting investors, promoting capital formation, and maintaining fair, efficient markets, with the implementation of SAB 121. Rep. Flood argued that the policy has disincentivized banks from offering custodial services for digital assets, despite their successful track record in providing such services for traditional financial assets.
Amidst these developments, Senator Cynthia Lummis is leading a joint resolution in the Senate in support of Rep. Flood’s proposal regarding SAB 121. However, it remains uncertain whether both resolutions will pass their respective chambers. The resolution put forth by Reps. Nickel and Flood aims to formally urge the SEC to backtrack on the contentious accounting bulletin. The SEC’s controversial approach toward regulating cryptocurrencies has drawn criticism from various stakeholders, including banking institutions, for impeding their participation in the digital asset sector. It is essential for regulatory agencies to engage in transparent and collaborative processes when introducing significant policy changes that impact the financial industry.
