House Republicans are fighting Joe Biden’s illegal overreach

House Republicans are fighting Joe Biden’s illegal overreach

  • Joe Biden

More than two years ago, Joe Biden’s Securities and Exchange Commission (SEC) illegally withheld “Employee Accounting Bulletin 121,” or SAB 121, as guidance. This is just another example of the Biden administration circumventing Congress to weaken consumer protections and hinder competition by preventing financial institutions and companies from providing Americans with custody of their digital assets.

That’s why today House Republicans are taking up H.J. Res. 109, which would repeal SAB 121. This resolution was first introduced by Rep. Mike Flood (R-NE) and ensures Americans can take care of their digital assets in one of the most secure ways possible.

FACTS ABOUT HJ RES. 109 (Courtesy of Republicans on the House Financial Services Committee):

Key Takeaway: Securities and Exchange Commission (SEC) Accounting Bulletin 121 (SAB 121) weakens consumer protections, hinders financial innovation, and hinders competition by preventing financial institutions and companies from providing digital asset custody services.

What is SAB 121?

  • SAB 121 expresses the SEC staff’s views on how certain entities should treat their custody obligations when safeguarding digital assets for their customers. Specifically, SAB 121 requires entities securing digital assets for users to record the liability and the corresponding asset on their balance sheet at the fair value of the digital assets. SAB 121 also sets out certain disclosure requirements for a digital asset. This approach differs from traditional depository practices, which allow deposit assets to be treated off-balance sheet.
  • SAB 121 was released on March 31, 2022. More than a year later, on October 31, 2023, the Government Accountability Office (GAO) determined that SAB 121 constituted a “rule” within the meaning of the Congressional Review Act (CRA).

What was the impact of SAB 121?

  • Because SAB 121 requires custodians to report customer digital assets on their own balance sheets, financial institutions must incur significant capital, liquidity and other costs under the existing prudential regulatory framework. As a result, these entities were prevented from engaging in the storage of digital assets. Forcing financial institutions to keep digital assets – protected on behalf of their customers – on their balance sheet could put Americans’ assets at greater risk if the custodian becomes insolvent or goes into receivership.

Why is it necessary to overturn SAB 121?

  • One of the only issues stopping financial institutions and companies from engaging in digital asset custody is SAB 121. In fact, federal banking regulators have confirmed that digital asset custody is a permissible activity and have set guidelines for the secure storage of digital assets. This shows that the SEC, the market regulator, is trying to impose banking policy with zero input from prudential regulators and the public.
  • HJ Res. 109 was introduced on February 1, 2024 by Representative Mike Flood (R-NE) and is co-sponsored by Majority Whip Tom Emmer (R-MN), Congressman Wiley Nickel (D-NC), and Congressman Darren Soto (D-FL) . Senator Cynthia Lummis (R-WY) introduced a companion resolution in the Senate.

Bottom line: By overturning SAB 121, Congress will ensure Americans can exercise custody of their digital assets in one of the safest ways possible – through highly regulated banks – and financial institutions will be able to actually engage in digital asset activities.