The GOP’s push against the SEC’s crypto rule highlights ongoing tensions over regulatory approaches, potentially impacting future crypto policies.

Rep. Patrick McHenry and Sen. Cynthia Lummis lead an appeal letter sent to the SEC urging the regulatory agency to drop SAB121.

Republican lawmakers from both chambers of Congress have sent a letter to the SEC urging the agency to rescind its special accounting rule for crypto assets, known as Staff Accounting Bulletin 121 (SAB 121).

The letter, led by House Financial Services Chair Rep. Patrick McHenry and Sen. Cynthia Lummis (R-Wyo.), comes after both chambers of Congress passed legislation to overturn the rule, which was subsequently vetoed by President Biden in May. A total of 13 senators and 29 House members, primarily from financial committees, signed the appeal.

“Both the House and Senate vote on H.J. Res. 109 sent a clear message from Congress to the SEC. Issuing staff guidance to impose policy changes is not appropriate and violates both the spirit and the letter of the Administrative Procedure Act. We urge you to rescind SAB 121,” the letter states.

SAB121 disrupts ‘generally accepted practices’ for asset custody

Issued by the SEC in March 2022, SAB 121 requires entities that safeguard digital assets for customers to recognize these assets as liabilities on their balance sheets, reflecting the unique risks associated with crypto custody. This guidance has since sparked industry backlash, as it complicates the ability of banks and financial institutions to offer digital asset services, leading to calls for its repeal due to concerns over regulatory overreach and the impact on consumer access to safe custody options.

The GOP lawmakers’ push to rescind SAB 121 reveals the ongoing friction between Congress and regulators over crypto policy. Critics argue that the rule disrupts standard practices by requiring custodians to treat clients’ digital assets as liabilities on their own balance sheets, potentially increasing costs for custody providers. Jennifer Schulp of the Cato Institute explained in recent testimony that this approach “upended generally accepted practices” in asset custody.

The letter also takes issue with recent statements by the SEC’s chief accountant acknowledging instances where companies’ arrangements fell outside the scope of SAB 121. The signatories contend that these opaque consultations have caused further confusion in the industry.

Notably, SAB 121 stands out as the only crypto-related issue that has united Congress sufficiently to pass legislation through both chambers. Given recent statements from US presidential candidate Kamala Harris about supporting digital assets and the outcomes of the recent presidential debate with Donald Trump, it’s likely that crypto and digital assets would become a crucial point of contention between the two.