The US Securities and Exchange Commission’s (SEC) recent release of Staff Accounting Bulletin (SAB) 121 is facing criticism from lawmakers. Members of the US Congress, in a memo dated November 15, have expressed their concerns to the Chairman of the FDIC Board, Acting Comptroller of the Currency Michael Hsu, and other financial authorities. They highlight the SEC’s SAB 121 ruling, published on April 11, 2022, which has come under public scrutiny following a finding by the Government Accountability Office (GAO) that it should be subject to the Congressional Review Act.
SAB 121 is a rule implemented by the SEC that requires financial institutions, credit unions, and banks offering crypto custodial services to maintain a specified amount of funds backing their customers’ digital assets. However, the US Congress has made it clear that this rule should not have any legal effect on the mentioned financial entities. Therefore, they are not obligated to recognize liability and corresponding asset offsets on their balance sheets.
The senators opposing the SAB 121 ruling argue that it was not submitted to Congress or the GAO, despite meeting the requirements of being an Administrative Procedure Act (APA) rule. Additionally, SAB 121 was not published in the Congressional Record, which is necessary under the Congressional Review Act (CRA). If allowed to stand, the senators believe that this ruling could set a troubling precedent, enabling regulatory gamesmanship to bypass the APA and granting regulatory authority to agencies like the SEC without congressional authorization.
In their memo, the US Congress requests the FDIC Chairperson and other financial authorities to provide clarity and guidance to demonstrate that the SAB 121 ruling should not be enforceable. They emphasize the need to prevent this ruling from establishing inappropriate regulatory control over financial institutions.