The Fight Against SAB 121
US Representative Mike Flood’s bill to revoke Staff Accounting Bulletin (SAB) 121 is gaining momentum in the House Financial Services Committee. This is a crucial step towards encouraging institutional adoption of cryptocurrencies in the United States. Perianne Boring, CEO of the Chamber of Digital Commerce, expressed optimism about this development, stating that “Momentum is building in Washington.”
Opposition and Concerns
Senator Lummis raised concerns about SAB 121, emphasizing the need for feedback from federal banking regulators and the public before implementing such a directive. She emphasized the importance of consumer protection and the ability of well-regulated financial institutions to securely hold Americans’ assets.
Congressmen Mike Flood and Wiley Nickel are taking action by introducing a resolution under the Congressional Review Act to assert that the rule should have no force or effect. They are also leading the Uniform Treatment of Custodial Assets Act, which aims to exempt banks from treating custodied assets as liabilities and prevent additional capital requirements for offering custody services for crypto-assets. Senator Cynthia Lummis is a strong supporter of this crypto bill.
The American Bankers Association expressed its concerns about SAB 121, stating that it represents a significant departure from longstanding accounting treatment for custodied assets. They believe it threatens the banking industry’s ability to provide safe and sound custody of digital assets.
Various financial institutions, including the Bank Policy Institute, Financial Services Forum, and SIFMA, stand in solidarity with the legislators’ efforts to oppose SAB 121.
The Threat Posed by SAB 121
SAB 121 imposes strict requirements on listed companies, forcing them to disclose crypto-assets under custody as both assets and liabilities on their balance sheets. However, this contradicts the convention that custodied assets do not belong to the company and should not be reflected on the balance sheet.
For banks, this rule significantly affects their capital requirements as they would need to hold capital equivalent to assets under custody. This presents a major compliance challenge, with BNY Mellon, for example, needing $48 trillion in capital if the rule were universally applied.
The Basel Committee, responsible for setting bank capital and liquidity standards, does not advocate for this accounting treatment. Even with its rules on crypto-assets, it explicitly stated that such assets should not be included on balance sheets, albeit with certain risk-related considerations.
The banking sector strongly opposes SAB 121. Former State Street Digital head Nadine Chakar described it as “insane,” and State Street Digital underwent restructuring and staff layoffs shortly after the launch of Spot Bitcoin ETF.
Federal Reserve Chair Jerome Powell also acknowledged the unconventional nature of SAB 121’s treatment during a Congressional hearing. Lawmakers have previously urged the Federal Reserve and Office of the Comptroller of the Currency (OCC) to disregard SAB 121, highlighting growing dissent towards its implications.
The Impact on Crypto Adoption
SAB 121 poses a significant threat to crypto adoption in several ways:
- Discourages institutional participation: The stringent requirements and capital implications discourage banks and other listed companies from offering custody services for crypto-assets.
- Limited options for consumers: If banks are unable to offer custody services due to SAB 121, consumers will have fewer trusted options for managing their digital asset portfolios.
- Inconsistent global standards: The Basel Committee’s stance against including crypto-assets on balance sheets creates inconsistency in global accounting standards, making it difficult for businesses to navigate regulatory landscapes.
Revoking SAB 121: A Step Towards Institutional Crypto Adoption
The advancement of US Rep Mike Flood’s bill to revoke SAB 121 through the House Financial Services Committee is a positive development for the crypto industry. If successful, this action will:
- Encourage institutional adoption: By removing the burdensome requirements of SAB 121, more banks and listed companies may be inclined to offer custody services for crypto-assets, promoting institutional adoption.
- Enhance consumer options: Revoking SAB 121 would ensure that consumers have trusted options for managing their digital asset portfolios, increasing accessibility and convenience.
- Promote regulatory consistency: Aligning US accounting standards with the Basel Committee’s stance on crypto-assets will contribute to global regulatory consistency and facilitate international business operations.
Hot Take: The Path to Crypto Adoption
The efforts to revoke SAB 121 demonstrate a growing recognition of the importance of institutional crypto adoption in the United States. By addressing the concerns raised by SAB 121, you are paving the way for a more inclusive and regulated crypto market. As momentum builds in Washington, you can expect further developments that support the growth and mainstream acceptance of cryptocurrencies. Stay tuned for updates as this crucial bill progresses through Congress!
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