The U.S. House of Representatives is scheduled to vote on a resolution, proposed by Representatives Wiley Nickel and Mike Flood, that aims to formally disapprove of the United States Securities and Exchange Commission’s (SEC) Staff Accounting Bulletin (SAB) 121. The resolution seeks to press the SEC to backtrack on the controversial accounting bulletin, which requires banks to list liabilities and corresponding digital assets on their balance sheets. Concerns have been raised about the ethicality of SAB 121, especially since the SEC did not submit a Congressional report detailing the bulletin.
During congressional testimony, Representative Flood criticized the SEC for failing to collaborate with Federal banking agencies before implementing SAB 121. He believes that the regulator should have consulted with various stakeholders, including registrants, accounting firms, standard setting bodies, trade groups, and other agencies. Banking institutions interested in digital assets have also expressed frustration with the policy, as it limits their ability to serve as custodians for crypto products, such as spot Bitcoin ETFs. The Securities Industry and Financial Markets Association president and CEO, Kenneth E. Bentson Jr., has highlighted the impact of SAB 121 on bank capital and liquidity ratios, stating that it disincentivizes banks from providing custodial services for digital assets.
Chairman Gary Gensler and the SEC have faced criticism for their aggressive regulatory approach to cryptocurrencies, including lawsuits against digital asset firms. Senator Cynthia Lummis is leading a joint senate resolution that aligns with Rep. Flood’s proposal, although it has yet to be voted on. It remains uncertain whether either resolution will pass in their respective chambers. Flood has argued that SAB 121’s requirement for balance sheet recognition diverges from the current accounting treatment for traditional assets held in custody, as traditional assets are not typically recorded on a firm’s balance sheet. Flood believes that banks and financial entities should continue to offer custodial services for digital assets, especially since they have successfully provided such services to the traditional financial system for decades.
The resolution being voted on by the House of Representatives reflects ongoing concerns about the regulatory actions of the SEC under Gensler’s leadership. The resolution highlights the importance of transparency and collaboration in the development of accounting guidelines, particularly when they have significant impacts on industries like banking and finance. The outcome of the vote on the resolution will provide insight into the level of support for challenging the SEC’s approach to digital assets and financial regulation. Whether the resolution passes or not, the debate around SAB 121 and the SEC’s regulatory tactics is likely to continue as stakeholders weigh the implications of the accounting bulletin on the industry and the broader financial ecosystem.
