On Thursday, the House Financial Services Committee voted in favor of a resolution that would attempt to appeal Security and Exchange Commission Staff Accounting Bill 121 (SAB).
SAB 121 was introduced in March of 2022, and enacted that month. It states digital asset custodians must report a financial liability. “corresponding assets” On their balance sheet for all custodied cryptocurrency. Staff at the SEC said that this practice is meant to protect against fraud. “significant risks and uncertainties associated with safeguarding crypto assets.”
Mike Flood (R-Neb.) and Wiley Nickel (D-N.C.), members of the committee, presented the resolution in early October, along with a measure similar introduced by Cynthia Lummis (R-Wyom), the Senate’s leader. In their report of October 20,23, the legislators referenced a Government Accountability Office report which said that SAB 121 was supposed to have been published as an official rule.
“Unfortunately, there were some serious problems with the process around SAB 121 and how it was issued,” Rep. Flood told the markup committee on Thursday. “The SEC issued SAB 121 without conferring with the prudential regulators who are the experts on regulating bank custody. That’s a pretty significant oversight.”
SEC says that SABs, while not being enforceable under the Securities Law, are still used to interpret and implement practices by its staff. SABs, unlike traditional rules published by the SEC, do not have to be publicized or require comment periods. Nor do they reflect official approval from the Commissioners.
The resolution’s opponents argue that SAB-121 provides an important layer of protection for consumers. Rep. Maxine Wassers, D. California, a vocal critic of the Committee’s so-called crypto-friendly efforts, stated that efforts such as SAB 121 prevent fraud.
“This guidance was offered to protect investors against the mishandling of customer crypto assets by custodians, a practice that was at the core of FTX’s spectacular collapse when billions of crypto assets went missing,” Rep. Waters said Thursday.
In a 31-20 vote, all Republicans and the three Democrats on the Committee voted in favor of moving forward with this resolution. Nickel, Ritchie Torres from New York and Josh Gottheimer from New Jersey are among the Democrats who voted in support.
Before SAB 121 can be thrown out, the resolution must pass both the House of Representatives and Senate.
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