Congress members ask SEC to allow banks to custody Bitcoin

Republicans on the House Financial Services and Senate Banking Committees aren’t happy with the SEC’s Staff Accounting Bulletin No. 121 (SAB 121).

This controversial rule changes how banks and financial institutions are expected to handle cryptocurrencies.

Chair Gary Gensler received a letter led by Chairman Patrick McHenry and Senator Cynthia Lummis demanding the SEC rescind the rule.

SAB 121 forces custodians, like banks, to treat customers’ digital assets as liabilities on their balance sheets. Sounds straightforward, but it’s not. 

It contradicts existing accounting standards and also risks putting consumers in a tough spot.

Congress hits back at SEC’s accounting rule

Both the House and Senate voted to overturn this rule, making it clear that Congress isn’t interested in letting this slide.  

The Republicans also argue that the SEC didn’t even bother consulting other financial regulators before issuing this bulletin. 

They believe that this approach is flawed and doesn’t reflect the real legal and economic obligations banks have towards their customers. 

Congress is particularly pissed because the SEC skipped the usual process. Normally, new rules have to go through the Administrative Procedure Act (APA), which includes a period of public feedback.

But the SEC skirted this by labeling SAB 121 as “staff guidance,” which meant no public comment or input was allowed. 

The Government Accountability Office even stepped in, confirming that SAB 121 qualifies as a rule under the Congressional Review Act. 

Now the Republicans want the SEC to backtrack and get rid of the bulletin altogether.

Instead of admitting the rule is a mess, the SEC’s Office of Chief Accountant has been trying to make things work behind the scenes. 

They’ve been consulting institutions on a case-by-case basis, trying to help them dodge some of the more rigid requirements of SAB 121. 

But this isn’t sitting well with Congress either. They say it only adds more confusion, creates inconsistencies across the industry, and leaves investors in the dark.

If the SEC really wanted to protect consumers, why all the secrecy and backdoor dealings?

Additional reporting by Noor Bazmi