WASHINGTON, D.C.— Today, U.S. Senator Cynthia Lummis (R-WY) alongside Reps. Wiley Nickel (D-NC) and Mike Flood (R-NE) introduced a bipartisan, bicameral Congressional Review Act resolution to overturn the U.S. Securities and Exchange Commission’s (SEC) Staff Accounting Bulletin (SAB) 121.
SAB 121 has serious implications for consumers and banks by confusing the distinction between customer assets and bank assets, threatening the foundation of essential custody services and increasing bankruptcy risk for consumers. Sen. Lummis and Reps. Nickel and Flood introduced this CRA after the Government Accountability Office (GAO) found the accounting bulletin is a rule for purposes of the Congressional Review Act. GAO’s findings in its October 31, 2023, decision confirm that SAB 121 has legal effect relating to public companies, including banks and trust companies, that have capital requirements tied to accounting standards. The GAO’s decision also underscores that the SEC should have sought public comment prior to issuing this legal requirement.
“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,” said Sen. Lummis. “I have serious concerns over the impact of this bulletin on consumer protection and ensuring well-regulated financial institutions are able to provide safe custody for Americans’ hard-earned financial assets.”
“Gary Gensler and the Security and Exchange Commission continue to overstep their authority, and it’s time for Congress to weigh in on Staff Accounting Bulletin No. 121,” said Rep. Nickel. “I’m proud to lead this bipartisan, bicameral effort with Senator Lummis and Congressman Flood pushing back against the SEC’s untenable approach on digital assets. I’ll continue to work in a bipartisan way to ensure that banks can safely hold digital assets for investors.”
“The Government Accountability Office has spoken. The SEC’s Staff Accounting Bulletin 121 (SAB 121) goes beyond the scope of an accounting bulletin and is effectively a rule,” said Rep. Flood. “The SEC issued SAB 121 without conferring with prudential regulators despite the accounting standard’s effects on financial institutions’ treatment of custodial assets, and the SEC issued SAB 121 without going through the notice-and-comment process. In the face of overreach by a regulator, it is the role of Congress to serve as a check. I am proud to jointly introduce a bipartisan resolution of congressional disapproval with Senator Lummis and Congressman Nickel to fulfill that role.”
“We applaud Senator Lummis and Representatives Flood and Nickel for their leadership on this important issue. The SEC’s Staff Accounting Bulletin 121 represents a significant departure from longstanding accounting treatment for custodied assets and threatens the banking industry’s ability to provide its customers with safe and sound custody of digital assets. Limiting banks’ ability to offer these services leaves consumers with few well-regulated, trusted options for their digital asset portfolios and ultimately exposes them to risk,” said Rob Nichols, President and CEO of the American Bankers Association.
“The Bank Policy Institute thanks Senators Lummis and Representatives Flood and Nickel for their work in opposing the Security and Exchange Commissions’ Staff Accounting Bulletin 121. BPI’s initial concerns that this would preclude highly regulated U.S. banking organizations from providing a custodial solution for digital assets at scale have been confirmed. The result is that digital asset custodial services are currently offered by a multitude of non-banking organizations, keeping the activity outside the prudential perimeter and outside of banks with comprehensive and robust risk management practices, thus increasing risks for customers,” said Paige Paridon, Senior Vice President and Senior Associate General Counsel of the Bank Policy Institute.
“The nation’s largest banks are subject to the highest level of prudential requirements. Unfortunately, significant capital requirements contained in the SEC’s SAB 121 have effectively precluded banks today from being able to safely offer digital asset custody services. Today’s joint resolution would rescind this unnecessary and unwise policy and allow U.S. banks to offer these services in a highly regulated and safe and sound manner. The Financial Services Forum commends Senator Cynthia Lummis and Representatives Mike Flood and Wiley Nickel for introducing this resolution and for their leadership on this important issue,” said Kevin Fromer, President and CEO of the Financial Services Forum.
“SIFMA thanks Senator Lummis, Congressman Flood and Representative Nickel for their efforts to address Staff Accounting Bulletin No. 121 (“SAB 121”), which the SEC issued without stakeholder engagement or consultation with the prudential regulators to fundamentally change the way financial institutions are expected to account for the custody of digital assets. SAB 121’s requirement for balance sheet recognition deviates from current accounting treatment for traditional assets held in custody, which are not required to be recorded on a firm’s balance sheet. Because of its impact on bank capital and liquidity ratios, SAB 121 has disincentivized banks from providing custodial services for digital assets. We do not disagree with the need for regulatory oversight, but the process should be deliberate and comprehensive to avoid unintended knock-on effects. Banks are already subject to extensive prudential rules and oversight and have deep expertise in providing safe custody of a wide variety of assets. SIFMA has consistently supported congressional action to bring attention to this issue and restore the ability for banks to provide such services for their clients, and we thank Senator Lummis and Congressmen Flood and Nickel for their leadership today,” said Kenneth E. Bentsen, Jr., President and CEO of the Securities Industry and Financial Markets Association.
In November, Lummis, Nickel and Flood sent a letter alongside Sen. Kirsten Gillibrand (D-NY) and Reps. Patrick McHenry (R-NC), French Hill (R-AR) and Ritchie Torres (D-NY) to the Federal Reserve, the Federal Deposit Insurance Corporation, the Office of the Currency and the National Credit Union Administration (prudential regulators) urging them to clarify that SAB 121 is not enforceable after the GAO found that it is a rule for purposes of the Congressional Review Act.
In March 2023, Lummis and McHenry sent a letter to the prudential regulators seeking clarification on SAB 121.
For text of the CRA, click here.