The Biden administration announced on May 8 that they would veto H.J. Res. 109, a resolution aimed at overturning the SEC’s Staff Accounting Bulletin 121 (SAB 121).
The administration expressed strong opposition to the resolution, stating that the proposed change could hinder the SEC’s efforts to protect investors in the crypto market and safeguard the financial system. According to the administration, the SEC issued the bulletin in response to demonstrated risks that have led to customer losses, and it reflects the informed views of SEC staff.
The Biden administration argued that invoking the Congressional Review Act to control the SEC’s ability to establish guidelines and address crypto-related issues would introduce financial instability and market uncertainty. The administration concluded that if presented with H.J. Res. 109, the President would veto it.
The US House of Representatives is scheduled to vote on the resolution on May 8. Chairman of the House Financial Services Committee Patrick McHenry voiced support for the resolution, criticizing SAB 121 as an example of SEC overreach under Chair Gary Gensler.
McHenry asserted that the SEC bypassed required public comment and rulemaking processes by categorizing the guidelines as staff guidance. He also raised concerns about the financial burden posed by SAB 121 on banks providing custody for customer crypto and warned that reducing bank participation could expose user assets to vulnerabilities.
Representative Tom Emmer and Congressman Mike Flood have also backed the overturning of SAB 121.
SAB 121 mandates that financial institutions and firms holding customer crypto assets must include them on their balance sheets. The policy has faced criticism from the banking industry, with the American Bankers Association (ABA) pointing out challenges since its implementation in 2022.
The ABA highlighted two main issues with SAB 121 – making it difficult for banks to serve as custodians for spot Bitcoin ETFs due to reserve and capital requirements, and the lack of differentiation between cryptos on public ledgers and traditional assets on permissioned ledgers.
Despite their dissatisfaction with the current rules, the ABA has urged the SEC to amend SAB 121 rather than completely overturn it.
