American Bankers Association: Please Biden abolish SAB 121, don't let investors only choose lightly regulated cryptocurrency platforms

The American Bankers Association, Institute of Bankers, Financial Services Forum, and Securities Industry and Financial Markets Association jointly expressed support for H.J. Res. 109 to repeal SAB 121 proposal, urging President Biden to approve the Congressional Review Act resolution to overturn SEC Staff Accounting Bulletin No. 121. This bipartisan initiative has garnered significant support in both the House of Representatives and the Senate.

What is SAB 121? What does the American Bankers Association find unreasonable about it?

President Biden Exercises Veto Power! Prevents Congressional Overreach SEC: Upholding SAB 121 Accounting Principle Can Protect Investors

The American Bankers Association stated that in March 2022, the SEC's Office of the Chief Accountant issued Staff Accounting Bulletin No. 121 (SAB) without prior consultation with prudential regulators or soliciting public input. The bulletin aims to address the risks faced by public companies in safeguarding digital assets for their clients. SAB 121 requires listed companies to record the fair value of user-held digital assets on their balance sheets.

This directive deviates from the traditional accounting treatment of custodial assets, which are typically considered off-balance sheet items.

Impact on Regulated Banking Institutions

The American Bankers Association believes that SAB 121 has a significant impact on regulated banking institutions, effectively hindering them from offering digital asset custody services on a large scale.

By requiring these assets to be recorded on the balance sheet, banks face higher capital, liquidity, and other prudential requirements. This creates unfair competition as "non-bank competitors" are not bound by these stringent requirements, thus limiting the market for custody providers who lack banking legal oversight and protection.

Investor Risk: Banks Opting Out Leaves Limited Regulated Platforms

The American Bankers Association states that excluding regulated banking institutions from participation in the digital asset custody market poses risks to investors and the broader financial system.

Without the involvement of these institutions, customers are left with fewer options for well-regulated and trusted digital asset custody, increasing their risks. Furthermore, SAB 121 weakens banks' ability to develop and implement responsible use cases for Distributed Ledger Technology (DLT) and complicates custody services for regulated broker-dealers due to the net capital rule Rule 15c3-1 treating balance sheet items as non-allowable assets.

Call for Presidential Action

The associations urge President Biden to sign H.J. Res. 109, nullifying SAB 121 and restoring balance to the financial system.