Lawmakers Push SEC for Bank Custody of Bitcoin
A group of 42 U.S. Republican lawmakers, under the leadership of Representative Patrick McHenry (R-NC) and Senator Cynthia Lummis (R-WY), sent a letter to U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler, requesting the immediate repeal of SAB 121. This regulation, officially called “Personnel Accounting Bulletin 121”, has been the target of criticism. This is because it has implications for the custody of digital assets, such as Bitcoin, by banks.
According to congressmen, SAB 121, issued by the SEC in March 2022, imposes a controversial requirement. Banks that custody cryptocurrencies must recognize these assets as liabilities on their financial statements.
This, according to lawmakers, “distorts cryptocurrency custody standards. Furthermore, it weakens consumer protections and stifles financial innovation.” The congressmen sent the letter ahead of a hearing with the SEC plenary, where they will discuss the matter extensively.
Congressmen argue that the SEC implemented SAB 121 without proper consultation with prudential regulators, violating the legal process established by the Administrative Procedure Act (APA).
They also highlight that this regulation forces banks to maintain offsets on their balance sheets for the value of digital assets in custody, a move that would not adequately reflect the legal and economic responsibilities of these institutions.
Bitcoin Custody
This approach, according to lawmakers, increases the risk of loss for consumers by creating legal uncertainty about responsibility for custody of cryptocurrencies.
The repeal request also has the support of cryptocurrency industry leaders such as Michael Saylor, president of MicroStrategy, who stated that “Congress believes that banks should have the ability to custody Bitcoin.”
The tension between innovation in the cryptocurrency market and traditional financial regulation in the United States continues to grow. Congressmen criticize the SEC for using accounting bulletins to impose significant changes to financial policies without going through due legislative process.
McHenry and Lummis argue that repealing SAB 121 would be the only appropriate remedy and is within the SEC's authority. They cite precedents for reviewing accounting bulletins as justification for overturning the rule, stating that the regulatory body must work with Congress to ensure that Americans have access to safe custody services for digital assets.