Banking Associations Appeal to President Biden to Overturn SEC's Controversial Digital Asset Rule
Four major financial associations have written to President Joe Biden, urging him to sign a Congressional resolution that would overturn the Securities and Exchange Commission's (SEC) controversial "Staff Accounting Bulletin 121" (SAB 121). The American Bankers Association, Bank Policy Institute, Financial Services Forum, and Securities Industry and Financial Markets Association (collectively known as "Associations") have expressed their support for H.J. Res. 109, which aims to nullify SAB 121.
The resolution, introduced by a bipartisan group of lawmakers, received strong support in Congress, passing with a 60-38 vote in the Senate and a 228-182 vote in the House. The Associations argue that SAB 121, which was released by the SEC in March 2022 without proper consultation or public comment, poses significant challenges for publicly traded companies that safeguard digital assets for their customers.
Under SAB 121, these companies are required to record the fair value of user-safeguarded digital assets on their balance sheets, which deviates from the standard accounting practice of treating custodied assets as off-balance sheet items. This effectively prevents regulated banking organizations from offering digital asset custody services at scale, as they would be subject to higher capital, liquidity, and other prudential requirements compared to their non-bank competitors.
The Associations contend that by hindering regulated banking organizations from providing digital asset safeguarding services, SAB 121 ultimately harms investors, customers, and the financial system as a whole. It limits the market to custody providers that do not offer the same level of legal and supervisory protection as federally-regulated banking organizations. Additionally, SAB 121 undermines banks' ability to develop responsible use cases for distributed ledger technology (DLT) and hinders regulated broker-dealers from offering custody services due to the net capital rule (Rule 15c3-1).
In a previous joint letter to the SEC in February 2024, the Associations highlighted that SAB 121 has hindered their member banks' ability to develop and bring certain digital asset products and services to market at scale over the past two years. They argue that SAB 121 represents a significant departure from longstanding accounting treatment for custodial assets and threatens the industry's ability to provide customers with safe and sound custody of digital assets.
The Associations have respectfully requested President Biden to sign H.J. Res. 109 into law, which would nullify SAB 121 and enable regulated banking organizations to offer digital asset custody services without facing economically prohibitive implications. They believe that this action is necessary to protect investors, customers, and the integrity of the financial system.
