The Legislative Move
On February 29, 2024, the US House Financial Services Committee advanced a resolution aimed at overturning the Securities and Exchange Commission’s controversial Staff Accounting Bulletin 121 (SAB 121), marking the most significant congressional challenge to the SEC’s crypto regulatory framework to date. The resolution, which passed along party lines with some bipartisan support, utilizes the Congressional Review Act to formally disapprove of the SEC guidance that has prevented banks and traditional financial institutions from custodying digital assets.
SAB 121, issued in March 2022, requires companies that custody crypto assets to count them as liabilities on their balance sheets, effectively forcing banks to hold capital against digital asset holdings at a rate that makes crypto custody economically unviable for most institutions. The guidance has drawn criticism from across the financial industry, including from traditional banks, crypto firms, and even some within the SEC itself. At press time, BTC trades at $61,198 and ETH at $3,341 as the broader market rally continues.
The committee’s action comes at a pivotal moment for crypto regulation. With Bitcoin spot ETFs already approved in January and attracting record inflows of $673 million in a single day, the tension between the SEC’s cautious approach and Congress’s increasingly pro-crypto stance has reached a breaking point.
Jurisdiction Context
SAB 121 emerged from the SEC’s Division of Corporation Finance as staff-level guidance rather than a formal commission rule, which means it bypassed the standard public comment period and cost-benefit analysis typically required for significant regulatory changes. This procedural shortcut has been a central point of contention, with critics arguing that the guidance effectively functions as a rule without having gone through proper rulemaking procedures.
The House Financial Services Committee, chaired by Representative Patrick McHenry, has been investigating the SEC’s crypto regulatory approach throughout 2023 and 2024. The committee has held multiple hearings examining the commission’s enforcement-heavy strategy and its impact on the digital asset industry. The SAB 121 repeal effort represents the committee’s most concrete legislative action to date.
Internationally, the regulatory landscape contrasts sharply with the US position. The European Union’s MiCA framework, which takes full effect in 2024, provides clear rules for crypto custody without imposing balance sheet requirements equivalent to SAB 121. Singapore, Japan, and the United Kingdom have similarly adopted frameworks that allow institutional custody of digital assets without the capital penalties imposed by the SEC guidance.
Industry Reaction
The crypto industry’s response to the committee’s action has been overwhelmingly positive. Industry trade groups including the Blockchain Association and the Chamber of Digital Commerce have lobbied extensively for SAB 121’s repeal, arguing that the guidance prevents American financial institutions from competing in the global digital asset custody market.
Traditional banking groups have also expressed support. The American Bankers Association and the Securities Industry and Financial Markets Association (SIFMA) have previously raised concerns that SAB 121 puts US banks at a competitive disadvantage compared to their international counterparts. The guidance has effectively ceded the institutional custody market to non-bank entities, an outcome that runs counter to both consumer protection and systemic risk management goals.
Within the SEC, the guidance has not been universally supported. Commissioner Hester Peirce, known in the crypto community as “Crypto Mom,” has publicly criticized SAB 121 as an example of the commission’s hostile approach to digital assets. Commissioner Mark Uyeda has similarly expressed reservations about the guidance’s scope and implementation.
Compliance Hurdles
Even if the full House and Senate pass the resolution and it reaches the President’s desk, the path forward remains complex. A Congressional Review Act disapproval would prevent the SEC from issuing “substantially similar” guidance in the future, but it would not address the broader regulatory uncertainty surrounding digital asset classification and oversight.
The SEC under Chair Gary Gensler has maintained that most crypto assets qualify as securities subject to existing securities laws, a position that the crypto industry contests. This fundamental disagreement over jurisdictional boundaries means that repealing SAB 121, while significant, addresses only one piece of a much larger regulatory puzzle.
Compliance professionals note that institutions seeking to custody digital assets would still need to navigate a patchwork of federal and state regulations, including requirements from the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and state banking regulators. Many of these agencies have issued their own cautionary statements about crypto activities, creating additional layers of regulatory complexity.
What’s Next
The resolution now moves to the full House for a vote, where it is expected to pass given the strong bipartisan support for crypto-friendly legislation. The Senate presents a more challenging path, where the resolution would need 60 votes to overcome a potential filibuster. The Biden administration has signaled opposition to the resolution, raising the possibility of a presidential veto.
Regardless of the outcome, the SAB 121 repeal effort signals a significant shift in the political dynamics surrounding crypto regulation. With Bitcoin hovering near $62,000 and spot ETFs attracting billions in institutional capital, the financial industry’s interest in digital assets has become too large to ignore. The 2024 election cycle adds further pressure, as both parties compete for the growing demographic of crypto-interested voters.
The coming weeks will test whether congressional momentum for crypto regulatory reform can overcome the inertia of existing regulatory frameworks. For the industry, the SAB 121 battle represents both a specific policy fight and a broader test of whether the legislative branch can successfully assert its authority over the SEC’s approach to digital asset oversight.
Disclaimer: This article is for informational purposes only and does not constitute financial or legal advice. Cryptocurrency investments carry significant risk. Always conduct your own research before making investment decisions.
SAB 121 forcing banks to count custodied crypto as liabilities was always absurd. you dont count other peoples assets as your liabilities. the SEC knew exactly what they were doing
exactly. custodied assets are not your liabilities. every accountant outside the SEC agreed on this. the guidance was politically motivated from the start
the sec counted custodied assets as liabilities to kill crypto custody by making it too expensive. regulatory malpractice dressed up as accounting guidance
SAB 121 was issued as staff guidance specifically to bypass the formal rulemaking process. no public comment period, no cost benefit analysis. that alone should have gotten it struck down
bipartisan support for overturning SAB 121 tells you how overreaching this guidance was. even banks that hate crypto thought it was too far
Congressional Review Act is the nuclear option. they dont use it often. the fact that its being deployed against an SEC bulletin shows how serious this has gotten
congressional review act is basically a legislative veto. rare to see it used on financial regulation at all, let alone an sec bulletin