A bipartisan coalition of lawmakers is pressuring the Biden Administration to rethink its stance on the Congressional proposal to repeal the SEC’s Staff Accounting Bulletin No. 121 (SAB 121).
In a letter dated May 30, the lawmakers urged the administration to push the SEC to rescind the standard or endorse the Congressional proposal to eliminate the accounting standards.
The letter emphasized the potential risks to consumers and the financial sector posed by the current accounting treatment required for digital assets under SAB 121. This standard, published on March 31, 2022, mandates that entities holding digital assets for customers must consolidate these assets onto their balance sheets and provide specific disclosures.
According to the lawmakers, this requirement differs from the accounting treatment of other asset classes and may increase risks for consumers by discouraging regulated financial institutions from managing digital assets.
The lawmakers pointed out that the Government Accountability Office has classified SAB 121 as a rule under the Administrative Procedure Act and the Congressional Review Act. They criticized the SEC for bypassing the traditional notice and comment rulemaking process, which allowed the SEC to avoid a full commission vote and prevented stakeholders from providing input.
The letter also stated that revisiting and rescinding staff accounting bulletins falls within the SEC’s authority, as most over the past three decades have involved revisions or rescissions. Despite this, SEC Chair Gary Gensler has remained firm in upholding the guidance of SAB 121 to the detriment of the industry, according to the lawmakers.
The letter was signed by Senators Cynthia Lummis and Representatives Patrick McHenry, Andy Barr, Tom Emmer, Mike Flood, French Hill, Dan Meuser, Wiley Nickel, and Ritchie Torres. They argued that the bipartisan support for H.J.Res.109, a resolution expressing congressional disapproval of SAB 121, shows widespread opposition to the rule.
The lawmakers urged President Biden to either approve the resolution or work with the SEC to revoke the guidance, stating, “Congress has spoken: the SAB 121 CRA vote sent a clear, bipartisan message to the SEC that this misguided policy is harmful to consumers and staff guidance was not appropriate to impose policy changes and must be overturned.”
If Chair Gensler continues to support SAB 121, the lawmakers warned that the resolution disapproving the rule should be enacted into law or allowed to take effect. This ongoing debate over SAB 121 reflects broader tensions surrounding the regulatory treatment of digital assets and the role of financial institutions in managing these emerging financial instruments.
