Rep. Flood Testifies in Support of H.J.Res. 109 to Overturn SEC’s SAB 121
SAB 121 upends custody rules for digital assets—weakening consumer protections and impeding financial innovation
Washington,
May 6, 2024 -
Today, Representative Mike Flood (NE-01) appeared before the House Committee on Rules to speak in support of his resolution, H.J.Res. 109, “Providing for congressional disapproval under chapter 8 of title 5, United States Code, of the rule submitted by the Securities and Exchange Commission relating to ‘Staff Accounting Bulletin No. 121.’”
H.J.Res. 109 overturns the SEC’s SAB 121 under the Congressional Review Act (CRA). By overturning SAB 121, the bipartisan resolution ensures consumers are protected by removing roadblocks that prevent highly regulated financial institutions and firms from acting as custodians of digital assets.
Watch Rep. Flood’s testimony here.
Read Rep. Flood’s testimony as prepared for delivery:
“Chairman Burgess and Ranking Member McGovern, thank you for the opportunity to testify today on my bipartisan Resolution, H.J. Res. 109, ‘Providing for congressional disapproval under chapter 8 of title 5, United States Code, of the rule submitted by the Securities and Exchange Commission relating to ‘Staff Accounting Bulletin Number 121.’’
“I’d like to start by thanking Congressman Nickel and Senator Lummis for working with me to introduce this resolution.
“Since President Biden took office, this Administration has made it a point to test the limits of, and take shortcuts around, the public rulemaking processes.
“Staff Accounting Bulletin, or SAB, 121 is one such example.
“Let me begin by briefly explaining what a staff accounting bulletin is. Staff accounting bulletins are technical accounting guidance for public entities.
“They’re typically non-controversial in nature and, importantly for this conversation, they are not rules. Guidance is not supposed to dictate a major change in policy; that’s what our notice-and-comment rulemaking process is for.
“However, SAB 121 is different. It’s both a change in policy and a change that’s controversial. You don’t have to take my word for it, the Government Accountability Office decision on SAB 121 was crystal clear: this staff accounting bulletin is a rule for purposes of the Congressional Review Act. Without objection, I’d like to submit the GAO decision letter on SAB 121 into the record.
“It is unfortunate that the SEC would attempt to circumvent the rulemaking process while falsely claiming that SAB 121 is simply non-binding staff-level guidance.
“SAB 121 sets a disturbing precedent and is not the appropriate vehicle to promulgate accounting guidance for digital asset custodians.
“It is also alarming that the SEC did not coordinate with the Federal banking agencies.
“According to a former Chief Accountant of the SEC, ‘[g]enerally, before any SAB is issued, the general content and staff views to be expressed in the SAB are discussed with registrants, accounting firms, standard setting bodies, trade groups, and other agencies.’
“That did not occur here.
“My bipartisan resolution will help right this wrong and provide Congress with an opportunity to collaborate with the banking regulators and allow the public with the opportunity for comment, which the SEC failed to do the first time.
“Following the issuance of SAB 121, banks, brokers-dealers, and many other entities are not providing custodial services for digital assets.
“Given that these institutions have successfully offered custodial services to the traditional financial system for decades, it only makes sense for banks and other financial entities to continue this service for digital assets.
“Instead, the SEC has impeded this longstanding practice and made safeguarding digital assets prohibitively expensive for trustworthy and highly regulated institutions.
“A perfect example of the dangerous precedent set by SAB 121 can be found in the SEC’s recent approval of spot Bitcoin Exchange-Traded Products, or ETPs.
“Of the ETPs that were approved, none have banks acting as their custodian, and all are using the same four non-bank custodians.
“Our goal should be to bring digital assets under the umbrella of regulated financial institutions and to mitigate any potential risks associated with safeguarding digital assets.
“How can the SEC, in good faith, say they are working to bolster investor protection, when the agency has done the exact opposite with SAB 121?
“I would also ask the SEC, how does limiting options and incentivizing concentrated risk help protect Americans?
“The fact is the SEC made a mistake. They did not consult the banking regulators, sought to go around Congress, and deprived Americans of a highly regulated avenue to hold digital assets.
“Not only will my Resolution stop the SEC from running roughshod over the public rulemaking process, but it will also open the flood gates for competition and innovation within the digital asset ecosystem and the U.S. financial system more broadly.
“We cannot allow any agency, especially the SEC, to sidestep the rulemaking process and victimize fledgling industries.
“I urge the Committee to support the rule and my resolution so we can hold the SEC accountable for its unacceptable overreach.”
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