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US lawmakers challenge SEC on crypto asset regulation

US Congress Seeks to Remove Limitations on Banks Holding Crypto Assets

Several members of the United States Congress are pushing to remove the Staff Accounting Bulletin 121 (SAB 121) from the U.S. Securities and Exchange Commission (SEC) in order to ease restrictions on banks holding their clients’ cryptocurrency assets. This bulletin currently requires banks to keep their investors’ assets on their balance sheet.

Resolution Introduced to Repeal SEC’s SAB 121

Representatives Mike Flood and Wiley Nickel, along with Senator Cynthia Lummis, have introduced a resolution under the Congressional Review Act to repeal the SEC’s SAB 121 on Feb. 1, 2023. If passed, this resolution would formally disapprove of the accounting rule and declare it has no legal force.

SAB 121 Limits Banks Acting as Crypto Custodians

SAB 121 states that banks must hold their customers’ crypto assets on their balance sheet, requiring them to maintain capital against these assets. U.S. lawmakers argue that this limits the ability of regulated banks to act as crypto custodians and treats crypto holdings differently than other assets.

Congress Urges Financial Authorities to Clarify SAB 121’s Enforceability

In November 2023, several members of Congress submitted a memo urging key financial authorities, including the chair of the board of the Federal Deposit Insurance Corporation, to provide guidance or take action clarifying that the SEC’s SAB 121 is not enforceable following a Government Accountability Office (GAO) finding.

Investing in Web 3.0: What You Need to Know

The Government Accountability Office (GAO) has determined that a congressional review of the Securities and Exchange Commission’s (SEC) Staff Accounting Bulletin (SAB) 121 is necessary, following a letter from Senator Lummis to the U.S. Comptroller General in August 2022. The review will focus on determining whether the bulletin should be classified as a rule under the Congressional Review Act.

Senator Lummis has expressed concerns about the potential impact of the SEC’s SAB 121 on consumer protection and the ability of well-regulated financial institutions to securely safeguard Americans’ hard-earned financial assets. She stated:

In response to Senator Lummis’ concerns, Flood has criticized the SEC for not consulting with prudential regulators or following the necessary notice-and-comment process before issuing SAB 121. He emphasized the importance of Congress serving as a check against regulatory overreach.

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