- Over 40 U.S. Republicans urged SEC Chair Gary Gensler to rescind Staff Accounting Bulletin No. 121 (SAB 121).
- Critics argue SAB 121 misrepresents custodians’ obligations and increases financial risks for consumers.
- The Government Accountability Office (GAO) found that SAB 121 bypassed the required rulemaking process under the Congressional Review Act.
In a letter addressed to SEC Chair Gary Gensler, over 40 United States Republicans have urged the Securities and Exchange Commission (SEC) to rescind its Staff Accounting Bulletin No. 121 (SAB 121). This push comes after bipartisan support for a repeal bill was met with a veto, sparking renewed calls for action. The controversial rule has been criticized for failing to align with established accounting standards and increasing consumer risks.
SAB 121, introduced without input from prudential regulators, requires custodians of digital assets to recognize a liability on their balance sheets, measured at the fair value of customer assets. Critics argue that this approach misrepresents custodians’ legal and economic obligations and could expose consumers to greater financial risks. The letter emphasized that the rule deviates from standard practices and lacks the necessary oversight typically required in the rulemaking process.
GAO Decision Points to SEC Bypassing Rulemaking Process
Lawmakers highlighted that the Government Accountability Office (GAO) determined SAB 121 qualifies as a rule under the Congressional Review Act, meaning the agency should have adhered to the notice and comment process as outlined in the Administrative Procedure Act (APA).
By bypassing this, the SEC is accused of evading transparency and accountability. The signatories of the letter made it clear that rescinding SAB 121 would be within its authority, pointing to past instances where the commission had reconsidered staff bulletins.
Adding to the confusion, the SEC’s Office of Chief Accountants (OCA) has been working privately with certain institutions to help them navigate the rule’s balance sheet requirements.
However, these consultations have been conducted confidentially on a case-by-case basis, leading to inconsistencies in the application of SAB 121 across different firms. According to lawmakers, this lack of transparency undermines the agency’s argument for enhanced disclosures for investors, further complicating the rule’s implementation.
The letter calls on the SEC to take Congress’ message seriously, urging the commission to rescind the guidance and work together with lawmakers to ensure that digital asset custodial arrangements remain both secure and transparent. With both the House and Senate showing disapproval of the rule, the pressure is mounting for the agency to reconsider its stance.
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