The Biden administration has taken a firm stance against overturning the SEC’s Staff Accounting Bulletin 121 (SAB 121), a move that has sparked controversy within the financial sector, particularly regarding its impact on crypto-related activities. In a statement issued on May 8, the administration emphasized its opposition to H.J. Res. 109, asserting that reversing SAB 121 would disrupt the SEC’s efforts to protect investors in the crypto market and maintain financial system stability. The bulletin, issued in response to demonstrated risks resulting in customer losses, reflects the SEC’s informed views on safeguarding investments in this rapidly evolving landscape.
Furthermore, the administration warned that invoking the Congressional Review Act to overturn SAB 121 would curtail the SEC’s authority to establish essential regulatory frameworks and address emerging challenges in the crypto sphere. Such limitations, it cautioned, could introduce instability and uncertainty into financial markets. The announcement concluded with a clear message: “If the President were presented with H.J. Res. 109, he would veto it.” Simultaneously, the US House of Representatives is poised to vote on the resolution on the same day.
Chairman of the House Financial Services Committee, Patrick McHenry, voiced support for the resolution, denouncing SAB 121 as a prime example of SEC overreach under the leadership of Gary Gensler. McHenry criticized the agency for sidestepping public input and the rulemaking process mandated by the Administrative Procedure Act (APA) by categorizing the guidance as staff requirements. McHenry highlighted the financial burden imposed by SAB 121 on banks seeking to offer custody services for customer crypto assets and warned of potential vulnerabilities if bank participation is diminished.
Representative Tom Emmer also backed the repeal of SAB 121, with Congressman Mike Flood initially sponsoring the resolution. The implications of SAB 121 extend beyond the political sphere, impacting the operations of financial institutions and firms involved in safeguarding customer crypto assets. The American Bankers Association (ABA) has been among the critics of SAB 121, citing significant challenges posed by the policy since its inception in 2022.
Specifically, the ABA highlighted the impracticality for banks to serve as custodians for spot Bitcoin ETFs due to stringent reserve and capital requirements. Additionally, the bulletin’s failure to differentiate between cryptos on public ledgers and traditional assets on permissioned ledgers has been a point of contention. Despite its critique of the current regulatory framework, the ABA has advocated for modifications to SAB 121 rather than its outright repeal, underscoring the complexities surrounding crypto regulation within the banking sector.