A bipartisan coalition of lawmakers has urged the Biden Administration to abandon its plan to veto the Congressional proposal to repeal the SEC’s controversial Staff Accounting Bulletin No. 121 (SAB 121).
The letter, dated May 30, called on the administration to urge the SEC to rescind the standard or sign the Congressional proposal to repeal the accounting standards into law.
Bypassing traditional process
The letter highlighted the potential risks posed to consumers and the financial sector by the current accounting treatment mandated for digital assets.
SAB 121, published on March 31, 2022, requires entities that safeguard digital assets for customers to consolidate these assets onto their balance sheets and provide specific disclosures.
According to the letter, this requirement diverges from the accounting treatment of other asset classes and potentially exposes consumers to heightened risks by discouraging regulated financial institutions from managing digital assets.
The lawmakers emphasized that the Government Accountability Office (GAO) has classified SAB 121 as a rule under the Administrative Procedure Act (APA) and the Congressional Review Act (CRA).
The letter criticized the SEC for bypassing the traditional notice and comment rulemaking process, which allowed the SEC to avoid a full commission vote and prevented stakeholders from providing input.
Bipartisan support for repeal
The letter highlighted that revisiting and rescinding staff accounting bulletins is within the SEC’s authority, citing that most over the past three decades have involved revisions or rescissions.
The lawmakers wrote that despite this precedent, SEC Chair Gary Gensler has remained steadfast in maintaining the guidance of SAB 121 to the industry’s detriment.
The letter’s signatories, which include Senators Cynthia Lummis and Representatives Patrick McHenry, Andy Barr, Tom Emmer, Mike Flood, French Hill, Dan Meuser, Wiley Nickel, and Ritchie Torres, argued that the bipartisan support for H.J.Res.109 — a resolution expressing congressional disapproval of SAB 121 — demonstrates widespread opposition to the rule.
The lawmakers urged President Biden to either sign the resolution into law or collaborate with the SEC to revoke the guidance. The letter stated:
“Congress has spoken: the SAB 121 CRA vote sent a clear, bipartisan message to the SEC that this misguided policy is harmful to consumers and staff guidance was not appropriate to impose policy changes and must be overturned.”
The lawmakers warned that if Chair Gensler continues to uphold SAB 121, the resolution disapproving the rule should be enacted into law or permitted to take effect.
The ongoing debate over SAB 121 reflects broader tensions regarding the regulatory treatment of digital assets and the role of financial institutions in managing these emerging financial instruments.
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