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The U.S. House of Representatives is scheduled to vote this afternoon on a resolution introduced by Representatives Wiley Nickel (D-NC) and Mike Flood (R-NE) that would formally disapprove of the United States Securities and Exchange Commission’s (SEC) Staff Accounting Bulletin (SAB) 121.
Reps. Wiley Nickel And Mike Flood’s Resolution To Be Voted On Today
Should the resolution be approved, it would officially urge the SEC to reconsider its contentious accounting bulletin.
SAB 121 has faced criticism since its inception in April 2022, as it mandates that banks report liabilities and corresponding digital assets on their balance sheets, which the federal regulator described as an effort to “safeguard” crypto assets.
Concerns have arisen regarding the legitimacy of SAB 121, particularly since the SEC did not provide a Congressional report outlining the details of the controversial accounting bulletin.
“It is unfortunate that the SEC would attempt to bypass the rulemaking process while inaccurately asserting that SAB 121 is merely non-binding staff-level guidance,” Flood stated during his testimony earlier this week. “SAB 121 establishes a troubling precedent and is not the suitable means to issue accounting guidance for digital asset custodians.”
Why The SEC’s SAB 121 Is Getting Flack From Congress
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In his congressional testimony this week, Flood further criticized the SEC for not collaborating with Federal banking agencies prior to implementing the bulletin, emphasizing that the regulator should have engaged with “registrants, accounting firms, standard-setting bodies, trade groups, and other agencies.”
Banking institutions aiming to engage with digital assets have also condemned the policy for hindering their ability to act as custodians for crypto products, including the recently SEC-approved spot Bitcoin ETFs.
The SEC’s statutory mission is to protect investors, facilitate capital formation, and maintain fair, orderly, and efficient markets.
Chairman Gensler is violating all three of these with his illegal SAB 121 rule. pic.twitter.com/Wky2K8zglR
— Tom Emmer (@GOPMajorityWhip) May 7, 2024
“SAB 121’s requirement for balance sheet recognition diverges from the current accounting treatment for traditional assets held in custody, which are not mandated to be recorded on a firm’s balance sheet,” stated Kenneth E. Bentson Jr., president and CEO of the Securities Industry and Financial Markets Association, in a February statement. “Due to its effect on bank capital and liquidity ratios, SAB 121 has discouraged banks from offering custodial services for digital assets.”
“Considering that these institutions have effectively provided custodial services to the traditional financial system for decades, it is logical for banks and other financial entities to extend this service to digital assets,” Flood remarked.
The SEC, under the leadership of Gary Gensler, has faced ongoing criticism for its stringent regulatory stance on cryptocurrencies. During his tenure, the agency has taken legal action against multiple digital asset firms.
At the same time, Senator Cynthia Lummis is spearheading a joint senate resolution in support of Flood’s proposal, which has yet to be voted on.
However, it remains uncertain whether each resolution will be approved in their respective chambers.
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