Financial officials urged members of the US Congress to repeal SEC SAB 121

Several members of the United States Congress have filed a memo urging key financial officials, including the chairman of the Federal Deposit Insurance Commission's board and the comptroller of the currency, to issue guidance or the US Securities and Exchange Commission to take clarifying action. (SEC) Staff Accounting Bulletin 121 (SAB 121) is no longer applicable following a recent Government Accountability Office (GAO) finding.

In the memo, members of Congress said that SAB 121 should not have any legal effect and that the federal banking agencies and national credit unions do not want the administration of banks, credit unions and other financial institutions that provide custody services for digital assets.

#NEWS: Chairman @PatrickMcHenry & @SenLummis lead a bipartisan, bipartisan letter urging common sense regulators not to enforce #SAB121.

The letter follows @USGAO's finding that the notice is “statutory” for CRA purposes.

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— Financial Services GOP (@FinancialCmte) November 15, 2023

SAB 121 states that bank customers' crypto assets must be kept on the bank's balance sheet, reflecting the value of the assets and requiring capital to be maintained on them. Industry representatives and several U.S. lawmakers have argued that it would jeopardize the desire of regulated banks to act as crypto custodians and treat crypto holdings differently from other assets.

The GAO decided that the SEC's SAB 121 should be subject to congressional review in August 2022, based on a letter from Senator Cynthia Lammis to the US Comptroller General. The review focused on whether the notice qualified as a directive under the Congressional Review Act. Under the law, agency regulations must be reported to the Comptroller General and both houses of Congress, a mechanism for Congress to veto the regulation.

Related: GAO Finds Controversial SEC Rule Subject to Congressional Oversight

Members of Congress, including Lummis, Sen. Kirsten Gillibrand, and Reps. Patrick McHenry, French Hill, Richie Torres, Mike Flood and Willie Nickell, expressed concern that implementing this law would set a dangerous precedent. The lawmakers say regulatory reform would allow administrative procedures to bypass the law, ultimately giving the SEC regulatory powers over institutions not authorized by Congress.

In June 2022, five senators wrote to SEC Chairman Gary Gensler expressing their disapproval of what they called the “backyard rule.” Flood also grilled Gensler on the ad during an appearance before the House Financial Services Committee in September.

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