Congress questions SEC’s approach to digital asset liabilities, asks SEC to allow banks to custody Bitcoin

Republican members of the House Financial Services and Senate Banking Committees have expressed strong disapproval of the U.S. Securities and Exchange Commission’s (SEC) Staff Accounting Bulletin No. 121 (SAB 121). This contentious rule, introduced without the usual regulatory processes, changes how banks and financial institutions are expected to handle cryptocurrencies by treating customers' digital assets as liabilities on their balance sheets.

Led by Chairman Patrick McHenry and Senator Cynthia Lummis, Republican lawmakers have sent a letter to SEC Chair Gary Gensler, demanding that the rule be rescinded. They argue that SAB 121 not only conflicts with existing accounting standards but also puts consumers at risk by misclassifying banks' obligations.

Congress fights back against SAB 121

Both the House and Senate have voted to overturn the SEC’s rule, making it clear that Congress will not allow SAB 121 to stand without challenge. The primary issue is that the SEC bypassed the usual consultative process by issuing the bulletin as "staff guidance," avoiding the Administrative Procedure Act (APA), which typically allows for public input and feedback.

This has caused frustration among lawmakers, who argue that the SEC’s actions lacked transparency and accountability.

The Government Accountability Office has also weighed in, stating that SAB 121 qualifies as a rule under the Congressional Review Act. This designation has added further pressure on the SEC to reconsider its approach.

Related reading：US Republicans challenge SEC over controversial cryptocurrency regulation SAB 121

Inconsistent implementation and growing confusion

Rather than admitting to the potential flaws in SAB 121, the SEC’s Office of Chief Accountant has been working behind the scenes to address the concerns of individual institutions on a case-by-case basis. However, this ad-hoc approach has led to further criticism from Congress, which claims that it creates inconsistencies across the industry and leaves investors uncertain about how their digital assets are being managed.

Lawmakers are particularly troubled by the lack of clarity and the perceived secrecy surrounding the implementation of the rule. They argue that if the SEC’s intent is to protect consumers, more transparency and a clearer regulatory framework should have been provided.