SAB 121 under fire: Bipartisan push to rescind controversial bulletin

• Lawmakers urge SEC to rescind SAB 121 over concerns about consumer protection and innovation.
• SEC Chair Gensler faces scrutiny during Congress testimony regarding cryptocurrency regulation and enforcement.

In June, U.S. President Joe Biden exercised his veto power against the repeal of Staff Accounting Bulletin 121 (SAB 121), but the discourse surrounding this regulation remains heated.

By July, the legislation reemerged on Capitol Hill as lawmakers sought to gather enough support for a veto-proof supermajority.

Republicans urge SEC to withdraw SAB 121

Amid these developments, Senator Cynthia Lummis, alongside House Financial Services Committee Chairman Patrick McHenry, urged the U.S. Securities and Exchange Commission (SEC) to withdraw SAB 121.

In a letter dated 23rd September, Lummis, McHenry, and 40 other lawmakers criticized the bulletin for undermining custody rules related to cryptocurrencies, diminishing consumer protections, and hindering financial innovation.

They contended that SAB 121 was implemented without engaging any prudential regulators.

They argued that the rule mandates custodians to acknowledge a liability while maintaining a corresponding offset on their balance sheets, calculated at the fair value of the customer’s digital assets.

The lawmakers added, 

“This accounting approach, which deviates from established accounting standards, would fail to accurately reflect the underlying legal and economic obligations of the custodian, and place consumers at a greater risk of loss.”

What’s the reason behind this move?

The letter emphasized that the authors considered SAB 121 was implemented without adequate consultation with relevant regulators and without following the notice and comment process required by the Administrative Procedure Act (APA).

The Government Accountability Office (GAO) reviewed SAB 121 and classified it as a formal rule, sparking significant debate over the SEC’s decision to adopt it as staff guidance.

Reinforcing their argument the lawmakers noted, 

“Rescinding SAB 121 is the only appropriate action and well within the SEC’s authority.”

Execs weighing in…

Needless today, in a 15th May letter to Chair Gensler, Wiley Nickel, a Democrat, claimed the regulator ran contrary to its mission to protect investors and breached its authority in trying to pass the controversial SAB 121.

Adding to the fray was Congressman Ritchie Torres who said, 

Source: Ritchie Torres/X

What lies ahead for Gensler and SAB 121?

Interestingly, the push to repeal Staff Accounting Bulletin 121 coincides with Gensler’s upcoming testimony before Congress on the 24th and 25th of September.

Source: Gary Gensler/X

Lawmakers plan to pose critical inquiries regarding the agency’s enforcement strategies within the digital asset space.

These hearings will address not only the implications of SAB 121 but also broader issues surrounding the SEC’s approach to cryptocurrency regulation, highlighting the growing scrutiny of the agency’s policies.

With the election just 41 days away, the outcome could significantly impact regulatory leadership because if Donald Trump emerges victorious, he has indicated plans to fire Gary Gensler.

Conversely, should Kamala Harris win, Gensler might find himself nominated as Treasury Secretary.