The Controversy Surrounding the US SEC’s Staff Accounting Bulletin 121

The US Securities and Exchange Commission’s (SEC) controversial Staff Accounting Bulletin 121 (SAB 121) is facing potential obstacles due to an upcoming House Appropriation budget. According to FOX Business reporter Eleanor Terrett, the budget includes a policy rider that prohibits the SEC from using appropriated funds to implement or enforce SAB 121. This could significantly impact the SEC’s ability to enforce the rule, which imposes digital asset requirements deemed harmful by some.

Political Divisions and Potential Challenges

The House, currently dominated by a Republican majority, is expected to pass the appropriation bill in a hearing on June 5. However, the Senate, controlled by Democrats and Independents, may present challenges in negotiating its own appropriation bill with the House. Terrett suggests that there may be Democratic support for leaving the rider in the budget, indicating potential political divisions on the issue.

The appropriation bill aims to provide the SEC with $2 billion in total funding in 2025, falling short of the $2.59 billion requested by SEC chair Gary Gensler. SEC commissioner Mark Uyeda has expressed support for withdrawing SAB 121, criticizing its implementation through a regulatory edict that bypassed the rulemaking process under the Administrative Procedure Act (APA). Uyeda believes this undermines checks and balances against an overreaching administrative state.

Criticism from SEC Commissioners

Uyeda’s concerns are shared by fellow SEC commissioner Hester Peirce, who previously stated that a bulletin was not the appropriate method for initiating significant changes. While both commissioners focused on procedural deficiencies rather than the specific content of SAB 121, Peirce acknowledged that the decision itself may have merit. This highlights internal dissent within the SEC regarding the handling of digital asset requirements.

SAB 121 mandates that financial institutions and other entities holding customers’ digital assets must account for these assets on their balance sheets. Critics argue that this approach to accounting and disclosure imposes substantial capital and liquidity costs on affected companies. The controversy over SAB 121 has led to legislative actions, with the House and Senate passing H.J. Res. 109 to overturn the bulletin.

President Biden’s Veto and Public Response

Despite the legislative effort to repeal SAB 121, President Joe Biden vetoed H.J. Res. 109 on May 31, citing concerns about potential implications for consumer protection and investor security. This decision was met with pushback from House lawmakers, the American Bankers Association, and other advocacy groups, who urged Biden to reconsider his veto and support the resolution.

The controversy surrounding the US SEC’s Staff Accounting Bulletin 121 reflects broader disagreements over regulatory processes, financial industry practices, and governmental oversight. The upcoming House Appropriation budget poses a significant challenge to the implementation of SAB 121, highlighting the complexities and divisions within the US financial regulatory landscape.