House Republicans urge SEC to revoke crypto custody rule

Over 40 House and Senate Republicans are urging the U.S. Securities and Exchange Commission (SEC) to rescind Staff Accounting Bulletin No. 121 (SAB 121), calling it a “disastrous” regulation. 

In a letter dated September 23, 2024, directed to SEC Chair Gary Gensler, House Financial Services Committee Chair Patrick McHenry, Senator Cynthia Lummis, and other lawmakers claimed the rule disrupts cryptocurrency custody practices and hinders financial innovation. 

SAB 121 requires SEC-reporting entities that hold cryptocurrencies in custody to record those holdings as liabilities on their balance sheets. 

Critics argue that the accounting rule does not align with established standards and could expose consumers to risks by failing to reflect the actual legal and economic obligations of custodians. 

The letter further criticises the SEC for allegedly bypassing the required notice and comment process under the Administrative Procedure Act when issuing SAB 121. 

“By issuing this rule under the guise of staff guidance, the SEC evaded the notice and comment rulemaking process,” the lawmakers wrote. 

They insisted that rescinding the rule is “the only appropriate action.” 

Republican Representative Wiley Nickel also voiced concerns about SAB 121’s potential impact on banks. 

He claimed the rule could prevent U.S. banks from effectively custodying cryptocurrency exchange-traded products, creating concentration risk by shifting control to non-bank entities. 

The pushback comes just ahead of the House Financial Services Committee’s scheduled hearing with the SEC on September 24. 

The letter also mentions that the SEC’s Office of Chief Accountant may have worked with certain institutions to avoid SAB 121’s reporting requirements, potentially creating inconsistency in how the rule is applied. 

SAB 121 previously received bipartisan opposition. 

However, a repeal bill was vetoed by President Joe Biden in June 2024, and a subsequent attempt to overturn the veto failed by 60 votes on July 10.