House Financial Services Committee Advances Resolution to Appeal SEC's Crypto Custody Policy

According to Blockworks, the House Financial Services Committee has voted to advance a resolution attempting to appeal the Security and Exchange Commission’s (SEC) Staff Accounting Bill (SAB) 121. Introduced in March 2022 and enacted the following month, SAB 121 requires digital asset custodians to report a liability and corresponding assets on their balance sheets for all custodied cryptocurrencies. The SEC staff claims this practice is intended to protect against the significant risks and uncertainties associated with safeguarding crypto assets. Committee members Mike Flood, R-Neb., and Wiley Nickel, D-N.C., introduced the resolution earlier this month, alongside a similar measure in the Senate led by Cynthia Lummis, R-Wyom. The legislators cited a report from the Government Accountability Office, which stated in an October 2023 report that SAB 121 should have been issued as a rule under the official process. Rep. Flood argued that the SEC issued SAB 121 without consulting prudential regulators who are experts on regulating bank custody, calling it a significant oversight. While SABs are not enforceable rules under securities law, they are used by staff for interpretations and practices, according to the SEC. Unlike traditional rules issued by the agency, SABs do not require public notice or comment periods and do not reflect the official approval of Commissioners. The resolution passed in a vote 31-20, with all Republicans and three Committee Democrats voting to push the measure forward. The resolution would have to pass a full floor vote in the House and the Senate before SAB 121 is discarded.