Financial authorities are facing pressure from Congress to disregard the SEC’s SAB 121 rule dictating how banks handle cryptocurrency assets.
In a memo this week, several legislators called on agencies like the Federal Deposit Insurance Corporation to provide guidance counteracting the SEC’s Staff Accounting Bulletin 121 (SAB 121). Issued in March 2022, SAB 121 requires banks to hold crypto assets from customers on their balance sheets.
Critics argue this improperly treats digital currencies compared to other custodial assets. They also warn that it could discourage banks from providing crypto custody services if extra capital must be held against these holdings.
The memo comes after a recent GAO finding
The memo comes after a recent Government Accountability Office (GAO) finding that SAB 121 should have undergone congressional review per the Congressional Review Act. This statute requires agency rules to be reported to Congress for potential disapproval.
The lawmakers, led by Senator Cynthia Lummis, expressed concern about sidestepping regulations to expand authority. They accused the SEC of “backdoor regulation” of institutions beyond its congressional mandate.
Industry representatives have also denounced SAB 121 since its release. Senator Lummis previously questioned SEC Chair Gary Gensler on the bulletin during a September hearing, alongside Representative French Hill.
With the GAO opinion bolstering their case, lawmakers are pressuring regulators to issue contradictory guidance. This would effectively nullify the SEC’s crypto custody requirements for banks and credit unions.
The outcome could determine these financial institutions’ willingness to provide crypto asset custody services. For now, the SEC rule remains standing. However, its future depends on how banking authorities respond to calls for action from Congress.