The Battle Over SEC’s Staff Accounting Bulletin 121

The upcoming House Appropriation budget may have significant implications for the US Securities and Exchange Commission’s (SEC) ability to implement Staff Accounting Bulletin 121 (SAB 121). According to FOX Business reporter Eleanor Terrett, the bill includes a policy rider that would prohibit the SEC from using appropriated funds to enforce the rule. This move is seen as an attempt to prevent what some lawmakers see as burdensome requirements on digital asset holders.

The current political landscape in Congress adds an additional layer of complexity to this issue. With a Republican majority in the House and a Democratic and Independent majority in the Senate, there is likely to be disagreement on the appropriations bill. Terret has reported that there is some Democratic support for the rider, which may complicate negotiations between the two chambers.

The budget bill aims to provide the SEC with $2 billion in total funding for 2025, which is less than the $2.59 billion requested by SEC Chair Gary Gensler. This funding shortfall could impact the SEC’s ability to carry out its regulatory functions effectively, especially if the rider prohibiting SAB 121 implementation is included in the final bill.

SEC Commissioner Mark Uyeda has expressed support for withdrawing SAB 121, citing concerns about the rulemaking process. He believes that the SEC’s decision to introduce the bulletin through a regulatory edict rather than through the normal rulemaking procedures undermines the checks and balances in place to prevent overreach by the administrative state. This echoes previous criticism from Commissioner Hester Peirce, who raised similar concerns about the rulemaking process rather than the content of SAB 121 itself.

SAB 121 requires financial institutions and other firms that hold customers’ digital assets to include those assets on their balance sheets. This approach has been criticized for adding significant capital and liquidity costs for these companies, potentially impacting their ability to operate effectively. The House and Senate have previously passed resolutions to overturn SAB 121, but President Joe Biden vetoed the resolution, citing concerns about consumer protection and market stability.

The battle over SEC’s Staff Accounting Bulletin 121 highlights the complex interplay between regulatory agencies, lawmakers, and the executive branch. The outcome of the House Appropriations budget negotiations and the fate of SAB 121 will have far-reaching implications for the financial industry and digital asset holders. As the debate continues, it is essential for all stakeholders to consider the broader implications of these regulatory decisions on market stability and investor protection.