US Politicians Urge SEC To Revoke Cryptocurrency Custody Rule

According to Cointelegraph, over 40 United States Republicans have urged the US Securities and Exchange Commission (SEC) to revoke its Staff Accounting Bulletin No. 121 (SAB 121) rule. This call comes after a repeal bill garnered bipartisan support but was ultimately vetoed. SAB 121, which alters custody rules for cryptocurrencies, has been criticized for weakening consumer protections and stifling financial innovation. In a letter dated September 23, House Financial Services Committee Chair Patrick McHenry, Senator Cynthia Lummis, and 40 other politicians expressed their concerns to SEC Chair Gary Gensler. They argued that the rule, which mandates SEC-reporting entities to record cryptocurrency holdings as liabilities on their balance sheets, was issued without consulting any prudent regulators and deviates from established accounting standards. The politicians claimed that SAB 121 fails to reflect the legal and economic obligations of custodians and puts consumers at risk of loss. They also criticized the SEC for issuing the rule under the guise of staff guidance, thereby evading the notice and comment rulemaking process required by the Administrative Procedure Act. They asserted that rescinding SAB 121 is the only appropriate action and well within the SEC’s authority. The letter was sent ahead of the House Financial Services Committee’s hearing with the SEC on September 24. The politicians also criticized the SEC’s Office of Chief Accountant for allegedly working with certain institutions to avoid the balance sheet reporting requirements, potentially leading to inconsistency across the board. Notably, the Bank of New York, the largest custodian bank in the US, reportedly received an exemption from SAB 121, as mentioned in a September 17 hearing in the Wyoming legislature. Supporters of the letter primarily include Republican members from the House Financial Services and Senate Committee on Banking, Housing, and Urban Affairs. House Representatives French Hill, Tom Emmer, and Senators Bill Hagerty and Tim Scott were among the signatories. The SAB 121 repeal bill was vetoed by President Joe Biden in June after receiving bipartisan support in both the House and Senate. The House subsequently failed to overturn the veto on July 10, falling 60 votes short of the two-thirds majority needed for it to move to the Senate.