Representative Patrick McHenry, Chairman of the House Financial Services Committee, and Senator Cynthia Lummis have sent a letter demanding the Securities and Exchange Commission rescind Staff Accounting Bulletin (SAB) 121. The bicameral letter has been signed by 42 members of Congress. Both Lummis and McHenry have been supportive of compliant digital asset innovation.
SAB 121 is a mandate issued by the SEC that McHenry describes as requiring “financial institutions and firms that are safeguarding their customers’ digital assets to hold those assets on their balance sheet, making it cost-prohibitive to do so.” SAB 121 impedes financial institutions’ ability to serve digital asset customers.
SAB 121 is so unpopular that both the Republican-controlled House and the Democrat-controlled Senate approved a joint resolution designed to eliminate the staff bulletin, but it was vetoed by President Joe Biden. At that time, Representative McHenry stated:
“The Biden Administration has been given every opportunity to work with Congress on digital asset policy. In May, Congress passed a resolution to overturn the SEC’s SAB 121 with broad bipartisan support in both the House and Senate. A lot has changed since then. Following that vote, the House passed historic digital asset market structure legislation, FIT21, with an overwhelming two-thirds support. That means 71 Members of the President’s own party voted for that bill. Today’s vote should mirror the support for FIT21, given that this policy change was also in that legislation. SAB 121 is one of the most glaring examples of the regulatory overreach that has defined Gary Gensler’s tenure at the SEC.”
Today, the two Republicans have sent a letter to SEC Chair Gary Gensler demanding the agency rescind SAB 121.
The letter states:
“The Government Accountability Office issued a legal decision that SAB 121 is a rule for purposes of the Congressional Review Act. By issuing this rule under the guise of staff guidance, the SEC evaded the notice and comment rulemaking process required by the Administrative Procedure Act (APA). Rescinding SAB 121 is the only appropriate action and well within the SEC’s authority. There is ample precedent for revisiting a staff accounting bulletin.”
“Instead of recognizing this failure and rescinding the guidance, the SEC’s Office of Chief Accountant (OCA) has only caused further confusion, working with certain institutions to avoid the balance sheet reporting requirements. These consultations, completed on a case-by-case and confidential basis, do not provide the transparency or certainty needed to ensure SAB 121’s requirements are consistently applied across different institutions. Further, this approach defeats the SEC’s own – albeit flawed – argument because it fails to ensure enhanced disclosures are provided to investors.”
Chairman Gensler is on the record frequently denigrating the digital asset ecosystem. His detractors claim the SEC is pursuing regulation by enforcement by not adapting to digital asset innovation.
The letter to Gensler lands on his desk just in time for a hearing on the SEC at the House Financial Services Committee, where the Chair Gensler will testify.
The hearing, scheduled for tomorrow (Tuesday, September 24 at 10 AM ET), will include the Chairman and the four other SEC Commissioners.
The live stream is available here.