Senator Cynthia Lummis and House Financial Services Committee Chairman Patrick McHenry have called on the US Securities and Exchange Commission (SEC) to retract Staff Accounting Bulletin 121 (SAB 121).

In a letter sent to the SEC Chair Gary Gensler, they complained about the rule and its negative impact on the crypto industry and demanded it be withdrawn before the SEC oversight hearings.

Senator Cynthia Lummis, McHenry Pushback on SAB 121

According to a letter from Cynthia Lummis, McHenry, and a bipartisan group of lawmakers, SAB 121 imposes undue burdens on crypto custodians by requiring them to list customer assets as liabilities on their balance sheets. In the letter, 13 senators and 29 House representatives signed up for the petition to have SAB 121 nullified. 

They contend that this accounting rule overstates the legal obligations of the custodians and exposes consumers to more risk.

The letter also noted that SAB 121 was put into practice without what it referred to as adequate consultation with the relevant regulators and without following the notice and comment procedure expected under the Administrative Procedure Act (APA). A Government Accountability Office (GAO) review characterized SAB 121 as a formal rule, and there was much controversy regarding how the Securities and Exchange Commission implemented it as staff guidance. 

Ritchie Torres Criticizes SEC 

Congressman Ritchie Torres also voiced strong opposition to SAB 121, accusing the SEC of misusing the rule. Torres criticized the agency for further implementing SAB 121 in a way that contradicts generally accepted accounting principles (GAAP).

Therefore, the letter represents a sentiments of both the House and Senate who had earlier on passed similar resolutions disapproving the Staff Accounting Bulletin 121 Bill. Critics of SAB 121 argued that this hinders financial innovation and burdens custodians with unnecessary regulation that may slow down the development of cryptocurrencies in the US.

The lawmakers also underlined that the SEC has the power to cancel the bulletin and asked Gensler to collaborate with the Congress to adopt new measures that will better regulate the digital assets sector in a way that will not hinder its growth while ensuring consumer protection.

Closed-Door Exemptions Raises Doubts

The letter also had other issues with the Securities and Exchange Commission’s use of SAB 121. Lawmakers also accused the SEC’s Office of Chief Accountant of conducting behind-the-scenes meetings with specific industry players and providing them with permission to ignore the balance sheet disclosure provisions of the bulletin. This selective process, as stated in the letter, has led to ambiguity and unequal application of SAB 121 thus eroding its credibility.

The lawmakers’ actions align with increased focus on the SEC’s regulatory stance on cryptocurrencies. Moreover, Coinbase has been in a legal tussle with the SEC over the classification of digital assets.

Subsequently, the call for the revocation of Staff Accounting Bulletin 121 Bill comes ahead of US SEC Chair Gary Gensler’s testimony before Congress on September 24 and 25. Gensler is expected to face pointed questions from lawmakers about the agency’s enforcement actions in the digital asset sector. The hearings are likely to cover not only SAB 121 but also broader concerns about the SEC’s handling of cryptocurrency regulation.

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Kelvin Munene Murithi

Kelvin is a distinguished writer with expertise in crypto and finance, holding a Bachelor’s degree in Actuarial Science. Known for his incisive analysis and insightful content, he possesses a strong command of English and excels in conducting thorough research and delivering timely cryptocurrency market updates.

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