The Legislative Move
The United States House Financial Services Committee has taken a decisive step toward rolling back one of the most controversial Securities and Exchange Commission directives affecting the cryptocurrency industry. On March 1, 2024, the committee voted 31-20 to advance a resolution counteracting SEC Staff Accounting Bulletin No. 121, commonly known as SAB 121, which requires financial institutions holding digital assets for clients to record those holdings as liabilities on their balance sheets.
The resolution, spearheaded by Representatives Mike Flood and Wiley Nickel, aims to preserve the traditional off-balance-sheet treatment for custodial assets that banks have used for decades. The bipartisan vote sends a clear message that lawmakers from both parties view the SEC guidance as an overreach that threatens to push cryptocurrency custody services entirely out of the regulated banking system.
The timing is significant. With spot Bitcoin ETFs now trading on major exchanges since January 2024, the question of who can legally and practically custody these assets for institutional clients has become urgent. Major banks have expressed reluctance to offer crypto custody services precisely because of the capital requirements imposed by SAB 121, creating a bottleneck in institutional adoption.
Jurisdiction Context
The SAB 121 rule was issued by the SEC staff in March 2022 without a formal commission vote, which is one of the core criticisms raised by lawmakers. Staff Accounting Bulletins are typically meant to provide interpretive guidance on existing accounting standards, but critics argue that SAB 121 effectively created new policy by mandating that crypto assets held in custody be treated differently from all other custodial assets.
Under traditional accounting standards, assets held in custody by banks — such as securities, gold, or cash — are treated as off-balance-sheet items. The custodian does not own these assets and therefore does not list them as liabilities. SAB 121 broke with this precedent by classifying crypto assets as liabilities, arguing that the technological risks of blockchain-based assets create unique custodial obligations.
The practical effect is substantial. Banks holding crypto for clients must maintain capital reserves against those liabilities, making crypto custody prohibitively expensive. This has effectively barred major financial institutions like JPMorgan, Bank of America, and Wells Fargo from offering comprehensive digital asset custody services, despite growing client demand driven by the Bitcoin ETF launch.
Industry Reaction
The crypto industry has overwhelmingly welcomed the committee vote. The Blockchain Association, one of the leading industry lobbying groups, praised the bipartisan nature of the 31-20 tally, noting that it demonstrates how crypto policy is increasingly viewed as a competitiveness issue rather than a partisan one. Industry advocates argue that the United States risks falling behind jurisdictions like the European Union, which has already implemented comprehensive crypto regulation through MiCA.
Banking industry groups have also voiced support. The American Bankers Association and the Bank Policy Institute have long argued that SAB 121 places an unfair burden on regulated institutions seeking to offer crypto custody, pushing activity toward less regulated entities. Their position is that banks are precisely the institutions best equipped to provide safe custody, given their existing compliance infrastructure and federal oversight.
Simultaneously, the House Financial Services Committee unanimously approved a separate bill enhancing the U.S. Secret Service authority to investigate digital asset-related crimes. This dual approach — rolling back perceived regulatory overreach while strengthening enforcement tools — reflects a maturing legislative perspective that distinguishes between innovation-friendly regulation and enforcement against bad actors.
Compliance Hurdles
Despite the committee victory, significant obstacles remain before SAB 121 is fully overturned. The resolution must pass the full House of Representatives, where it will need to navigate a crowded legislative calendar. Even if it passes the House, the Senate must also approve it, where the threshold for overcoming a potential filibuster is 60 votes.
There is also the question of presidential approval. The Biden administration has generally supported the SEC approach to crypto regulation, and a veto remains possible if the resolution reaches the president desk. However, the bipartisan nature of the committee vote suggests that supporters may have enough votes to sustain an override attempt.
Furthermore, even if SAB 121 is overturned, banks still face a patchwork of regulatory guidance from the Federal Reserve, the OCC, and the FDIC, all of which have issued cautionary statements about crypto-related activities. A comprehensive regulatory framework, such as the proposed FIT21 Act, would be needed to provide the clarity that financial institutions require to fully engage with digital assets.
What’s Next
The full House vote on the SAB 121 resolution is expected in the coming weeks, with supporters optimistic about its chances given the strong bipartisan committee vote. In the Senate, crypto-friendly legislators including Cynthia Lummis and Kirsten Gillibrand are expected to champion the measure, though the path to 60 votes remains challenging.
For the crypto industry, the stakes extend far beyond this single rule. The SAB 121 fight has become a proxy battle for the broader question of whether digital assets will be regulated through enforcement actions and staff guidance — the approach favored by SEC Chair Gary Gensler — or through comprehensive legislation passed by Congress. The outcome will shape the trajectory of crypto regulation in the United States for years to come.
Meanwhile, state attorneys general from eight states — Arkansas, Iowa, Mississippi, Montana, Nebraska, Ohio, South Dakota, and Texas — have filed an amicus brief arguing that the SEC exceeded its authority in the Kraken lawsuit, further underscoring the growing legal and political pushback against the commission crypto regulation strategy.
Disclaimer
This article is for informational purposes only and does not constitute legal or financial advice. Regulatory developments can change rapidly, and readers should consult qualified legal and financial professionals for guidance specific to their circumstances. The views expressed in this article do not necessarily reflect the position of BitcoinsNews.com.
31-20 bipartisan vote to kill SAB 121. finally something both parties agree on, the SEC overstepped on crypto custody rules
bipartisan on crypto is rare. tells you how far the SEC went with SAB 121 that even pro-regulation Dems voted to roll it back
the fact that even pro-banking dems signed on tells you SAB 121 wasnt protecting anyone, just keeping crypto out of TradFi
Flood and Nickel pushing this makes sense. forcing banks to treat custodial crypto as liabilities was killing institutional adoption
institutional custody was literally dying because banks couldnt hold crypto without tanking their capital ratios
31-20 is a blowout for a crypto vote. shows how badly the SEC miscalculated this one
31-20 and it still took forever to actually implement. the bureaucracy around rolling back a single staff bulletin is absurd
forcing banks to count custodial crypto as liabilities was always a backdoor ban. glad both sides saw through it