Coinbase and Lawmakers Urge SEC to Revoke SAB 121, Citing Unfair Burden on Crypto Custodians

• A bipartisan group of lawmakers is urging the SEC to revoke Staff Accounting Bulletin 121 (SAB 121), arguing that it imposes undue burdens on crypto custodians.
• SAB 121 has been criticized for being implemented without public consultation or adequate regulatory review.
• Notable opposition includes criticism from lawmakers and prominent figures in the crypto industry, who seek clearer regulatory guidelines.

This article delves into the recent bipartisan push against SEC’s controversial accounting rule, SAB 121, and its implications on the crypto industry.

Bipartisan Lawmakers Challenge SEC’s SAB 121

In a significant move, Senator Cynthia Lummis and House Financial Services Committee Chairman Patrick McHenry, along with 40 other bipartisan lawmakers, have called on the US Securities and Exchange Commission (SEC) to retract Staff Accounting Bulletin 121 (SAB 121). This accounting rule has been criticized for imposing onerous requirements on crypto custodians by mandating that customer assets be listed as liabilities on their balance sheets. According to the lawmakers, this misrepresents the legal responsibilities of these custodians and amplifies risks for consumers, stifling innovation in the sector.

Critiques Against the Implementation of SAB 121

The letter from these lawmakers highlights that SAB 121 was enacted without the customary notice and commentary period required under the Administrative Procedure Act (APA). The Government Accountability Office (GAO) classifies SAB 121 as a formal rule, underscoring the procedural irregularities in its implementation. This contention is supported by Congressman Ritchie Torres, who lambasted the SEC for adopting SAB 121 in a manner that conflicts with generally accepted accounting principles (GAAP). Torres emphasized that this action stifles financial innovation and encumbers crypto custodians with excessive regulatory burdens.

Allegations of Selective Exemptions and Regulatory Bias

Further scrutiny has been directed towards the SEC’s Office of Chief Accountant, with allegations of confidential meetings with selective industry participants. These meetings reportedly led to exemptions from the balance sheet disclosure mandates stipulated by SAB 121. Such selective processes, according to the lawmakers, have created inconsistencies and undermined the credibility of the bulletin. This has fueled concerns about the SEC’s regulatory approach towards the burgeoning crypto sector.

Spotlight on SEC’s Regulatory Actions

The controversy surrounding SAB 121 comes as the SEC faces increasing questions about its broader regulatory actions in the crypto industry. Notably, cryptocurrency exchange Coinbase has engaged in a legal confrontation with the SEC over the classification of digital assets. The timing of the call to revoke SAB 121 is particularly poignant, given SEC Chair Gary Gensler’s upcoming testimony before Congress. Lawmakers are expected to grill Gensler on the agency’s handling of cryptocurrency regulations, focusing not only on SAB 121 but also on the broader enforcement policies that have drawn significant criticism from the crypto community.

Conclusion

To sum up, the bipartisan push against SAB 121 represents a critical moment for crypto regulation in the United States. Lawmakers argue that the rule, which was enacted without proper regulatory procedure, imposes undue burdens on crypto custodians and stifles industry innovation. As the SEC faces increased scrutiny, the call for transparent and equitable regulatory frameworks becomes even more pressing. Going forward, it remains to be seen how the SEC will navigate these challenges and whether it will adopt more inclusive measures that foster growth while ensuring consumer protection.