May 26, 2024
US Congress Challenges SEC on Crypto Regulations
Policy & Regulation

US Congress Challenges SEC on Crypto Regulations

A bipartisan group of U.S. lawmakers, including Mike Flood, Wiley Nickel, and Senator Cynthia Lummis, has initiated efforts to eliminate Staff Accounting Bulletin 121 (SAB 121) from the United States Securities and Exchange Commission (SEC). This bulletin places restrictions on banks holding clients’ cryptocurrency assets, mandating that these assets be reflected on the bank’s balance sheet. The legislators introduced a resolution under the Congressional Review Act (CRA) on February 1, 2023, to formally disapprove of SAB 121 and assert that it lacks legal force.

SAB 121 dictates that banks must include their customers’ crypto assets on their balance sheets, requiring the valuation of these assets and the maintenance of capital against them. Lawmakers argue that this rule undermines regulated banks’ willingness to serve as custodians for crypto assets and treats crypto holdings differently than other types of assets.

In November 2023, members of the U.S. Congress submitted a memo urging key financial authorities to clarify that SEC SAB 121 is not enforceable, following a Government Accountability Office (GAO) finding. The GAO determined that a congressional review of SEC SAB 121 is warranted, based on a letter from Senator Cynthia Lummis to the U.S. Comptroller General in August 2022. The review aimed to assess whether the bulletin qualifies as a rule under the Congressional Review Act.

“SAB 121 has massive implications, and the SEC should have received feedback on it from the federal banking regulators and the public before implementing this legally binding directive.”

Senator Lummis expressed significant concerns about how SAB 121 might impact consumer protection and hinder well-regulated financial institutions from securely safeguarding Americans’ financial assets. She emphasized the need for Congress to act as a check against regulatory overreach.

Congressman Flood criticized the SEC for issuing SAB 121 without consulting prudential regulators or undergoing the required notice-and-comment process. He highlighted the role of Congress in serving as a check against regulatory overreach.

The introduction of the resolution is a significant step in the ongoing effort to address the implications of SAB 121 on the cryptocurrency industry and regulated financial institutions. Lawmakers are actively working to ensure a balanced regulatory environment that fosters innovation while upholding consumer protection and financial stability.

Image by Freepik

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