House approves legislation to invalidate SEC’s SAB 121 guidance on cryptocurrency banking

The passing of a bill by the United States House of Representatives has overturned a contentious guidance issued by the Securities and Exchange Commission (SEC) that prohibited banks from owning cryptocurrency. President Joe Biden, however, has warned that he would veto the bill if it reaches his desk. On May 8, the House voted in favor of a bipartisan bill titled H.J. Res 109, which repealed the SEC’s Special Accounting Bulletin 121 (SAB 121). This bulletin required banks to include their customers’ cryptocurrency assets on their balance sheets, unlike traditional assets such as securities. Republican Party Representative Mike Flood, who introduced the resolution, argued that SAB 121 was unfair to banks wanting to hold custody of cryptocurrency, as custodial assets are typically considered off-balance sheet. Notably, 21 members of the Democratic Party joined Republicans in supporting the bill, resulting in a vote of 228 to 182 in favor of passing the bill. Despite the bill’s passage in the House, President Biden expressed his intention to veto it. The White House stated on May 8 that it strongly opposes the overturning of SAB 121, claiming that it would disrupt the SEC’s efforts to protect investors in the crypto-asset markets and safeguard the broader financial system. SAB 121, introduced by the SEC in March 2022, provides accounting guidelines for institutions that want to hold custody of cryptocurrency assets. However, it effectively prevents banks from acting as custodians of crypto assets on behalf of clients. U.S. lawmakers and SEC Commissioner Hester Peirce have argued that SAB 121 hinders regulated banks’ willingness to serve as crypto custodians and treats crypto holdings differently from other assets. The House Financial Services Committee (HFSC) stated on May 8 that the bipartisan resolution, by overturning SAB 121, ensures consumer protection by removing barriers that prevent highly regulated financial institutions from acting as custodians of digital assets. HFSC Chairman Representative Patrick McHenry described Staff Accounting Bulletin 121 as a glaring example of regulatory overreach under SEC Chairman Gary Gensler’s leadership. This is an ongoing story, and additional information will be provided as it becomes available.