Rep. McHenry seeks to get measure to repeal SEC accounting bulletin 'across the finish line'

House Financial Services Committee Chair Patrick McHenry, R-N.C., said he aims to get a measure to rescind a Securities and Exchange Commission bulletin that sets certain accounting standards for firms that custody crypto. 

Sen. Cynthia Lummis, R-Wyo., and Reps. Mike Flood, R-Neb., and Wiley Nickel, D-N.C., introduced a joint resolution to block the SEC's Staff Accounting Bulletin No. 121, known as SAB 121, on Thursday. The bulletin requires firms that custody crypto to record customer crypto holdings as liabilities on their balance sheets. 

"There is bipartisan agreement SAB 121 undermines consumer protection and leaves customers' digital assets vulnerable," McHenry said on X on Thursday. "I look forward to getting this measure across the finish line to overturn it."

McHenry, who has been friendly to crypto, has led multiple efforts to advance crypto bills and holds weight as the House Financial Services Committee chair, which has jurisdiction over the SEC. 

SAB 121 has received pushback from crypto advocates since it was issued in March 2022, as some called it "illogical." Others said it should have been done in the form of an official rule. SEC Chair Gary Gensler has stood by the bulletin citing concerns for customers in bankruptcy court. 

The Financial Services Forum, an advocacy organization for banks, laid out its concerns on Thursday in a statement about the resolution. 

“The nation’s largest banks are subject to the highest level of prudential requirements," the forum said. "Unfortunately, significant capital requirements contained in the SEC’s SAB 121 have effectively precluded banks today from being able to safely offer digital asset custody services."

GAO report

It was expected for lawmakers to bring up SAB 121 in 2024 after the agency watchdog Government Accountability Office said in October that the guidance needs to, by law, go in front of Congress before it can become effective. 

The bulletin is subject to the Congressional Review Act that requires agencies to submit a report on the rule to Congress, according to GAO. The CRA, enacted in 1996, aims to bolster congressional oversight of agency rulemaking. Lawmakers on Thursday filed that joint resolution under the CRA.

Rep. Flood accused the SEC of overreaching on Thursday. 

"The SEC issued SAB 121 without conferring with prudential regulators despite the accounting standard’s effects on financial institutions’ treatment of custodial assets, and the SEC issued SAB 121 without going through the notice-and-comment process," Flood said in a statement.  "In the face of overreach by a regulator, it is the role of Congress to serve as a check."