Two US lawmakers have criticized the Securities and Exchange Commission’s (SEC) Staff Accounting Bulletin (SAB) 121, which provides guidance on accounting treatment for digital assets. Senator Cynthia Lummis and Representative Patrick McHenry argue that the guidelines, which became effective in April 2022, will discourage regulated entities from engaging in digital asset custody, placing customer assets at greater risk of loss.
In a letter to ranking individuals with the Federal Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the National Credit Union Administration, the lawmakers stated, “SAB 121 places customer assets at greater risk of loss if a custodian becomes insolvent or enters receivership, violating the SEC’s fundamental mission to protect customers.” The lawmakers also disagreed with the breadth of the “digital asset” definition in SAB 121, arguing for a more nuanced hierarchy.
This is not the first time that Senator Lummis has raised concerns over the SEC accounting bulletin. Last year, Lummis and four other Republican senators sent a letter to the SEC expressing their concern that the bulletin amounted to “regulation disguised as staff guidance” and did not adhere to the Administrative Procedure Act.
Commissioner Hester Peirce also shared concerns over the SEC’s approach to crypto, stating that “the way the change is being made” was her main issue, characterizing it as “yet another manifestation of the Securities and Exchange Commission’s scattershot and inefficient approach to crypto.”
Lummis and Peirce have both been vocal about their support for the crypto industry. Lummis is a member of the Senate Banking Committee and has stated that she believes Bitcoin can act as a hedge against inflation. She has also introduced legislation that would provide a tax exemption for small crypto transactions.
Peirce, also known as “Crypto Mom,” has been a vocal advocate for the crypto industry and has been critical of the SEC’s approach. She has called for clear and concise regulations that provide certainty for market participants.
The SEC has faced criticism from both lawmakers and industry players for its approach to crypto regulation. While the agency has taken action against fraudulent crypto projects, it has been criticized for failing to provide clear guidance for the industry. The SEC is currently reviewing several Bitcoin exchange-traded fund (ETF) applications, which could provide more clarity for the industry.
As the crypto industry continues to evolve, lawmakers and regulators will need to work together to provide clear and concise regulations that protect customers while fostering innovation. The current approach has left many in the industry uncertain, and it remains to be seen how the SEC will respond to the lawmakers’ concerns over SAB 121.