Congress Members Seek Clarification on Enforceability of Crypto Asset Rule, SAB 121
Summary:
Congress members have sought clarification from financial authorities regarding SEC Staff Accounting Bulletin 121 (SAB 121), questioning its enforcement following a recent GAO determination. This bulletin compels banks to hold clients' crypto assets on their balance sheets, a rule which some lawmakers and industry members believe could discourage banks from serving as crypto custodians and treatment of these assets differently. These Congress members assert that enforcement of such a non-compliant rule might set a concerning precedent, possibly sidestepping the Administrative Procedure Act (APA) and giving the SEC undue authority over institutions not sanctioned by Congress.
A memorandum has been presented by members of Congress to high-ranking financial regulators, among them being the Head of the Federal Deposit Insurance Commission and the present Comptroller of the Currency. The purpose is to get clarification or even instigate measures to define that SEC Staff Accounting Bulletin 121 (SAB 121) cannot be enforced following the recent decision by the Government Accountability Office (GAO). Within the memo, these Congressional representatives argued that SAB 121 should carry no legal weight and that federal banking authorities and the National Credit Union Administration should not impose compliance on banks, credit unions, and other financial intermediaries that provide custodial services for digital assets.
SAB 121 is a regulation that mandates banks to hold the crypto assets of their clients on their balance sheets. This practice necessitates the bank to maintain capital against these assets while reflecting their value. Republicans in the U.S. as well as industry members note that this could potentially endanger the enthusiasm of controlled banks to serve as crypto custodians. It also results in crypto assets being treated differently compared to other assets.
Amid a probe, the GAO concluded that SAB 121 from SEC should be subjected to a Congressional review, which primarily derives from a letter penned by Lummis to the U.S. Comptroller General back in August 2022. The review examined whether the bulletin could be classified as an official rule under the Congressional Review Act (CRA). As per the CRA, any agency rule needs to be reported to the Comptroller General and both Congressional houses, keeping a provision for Congress to express disapproval of the rule.
Expressing their worries through the memo, the Congress members, including Patrick McHenry, French Hill, Cynthia M. Lummis, Ritchie Torres, Kirsten Gillibrand, Mike Flood, and Wiley Nickel, opined that enforcing this rule, which already flouts regulations, could set a disturbing precedent. Such a move might pave the way for regulatory positioning to evade the Administrative Procedure Act (APA), extending unnecessary regulatory control by the SEC over institutions not permitted by Congress.
Five Republican senators, inclusive of Lummis, drafted a letter to SEC Chairperson Gary Gensler in June 2022, revealing their objection to what they thought of as "backdoor regulation” in the bulletin. Moreover, Representative Mike Flood admonished Gensler regarding the bulletin during his session with the House Financial Services Committee in September.
Published At
11/16/2023 12:07:47 PM
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