Gensler says he won’t rescind crypto custody guidance, despite pleas from Congress

SEC Gary Gensler said Sept. 24 he will not rescind agency guidance related to custodians of digital assets, despite pleas to do so from lawmakers on both sides of the aisle.

The 2022 guidance, known as Staff Accounting Bulletin No. 121, or SAB 121, requires that any custodian of digital assets report those assets on their balance sheets. That requirement is needed to “enhance the information received by investors and other users of financial statements” about the risks of digital assets, the SEC said in the bulletin.

However, lawmakers that led congressional efforts to overturn SAB 121 said that such a requirement, which raises capital requirements, therefore hinders banks’ ability to custody digital assets. In bipartisan votes, the House and Senate both passed a resolution, known as H.J. Res. 109, in May to overturn the guidance, but President Joe Biden vetoed that resolution at the end of May. The House then fell short of the two-thirds vote needed to override a presidential veto, leaving the guidance in place.

At a House Financial Services Committee hearing on Sept. 24, Rep. Wiley Nickel, D-N.C., asked Gensler if he would “commit to rescinding SAB 121 today,” given bipartisan votes to overturn the guidance in both chambers of Congress.

“No, it’s (a) good accounting bulletin that’s out there,” Gensler replied.

The day before the hearing, Republicans on the House committee as well as GOP lawmakers in the Senate Banking Committee sent a letter to Gensler urging him to rescind the guidance.

“Both the House and Senate vote on H.J. Res. 109 sent a clear message from Congress to the SEC,” the lawmakers wrote in their Sept. 23 letter. “Issuing staff guidance to impose policy changes is not appropriate and violates both the spirit and the letter of the Administrative Procedure Act.”

On Sept. 24, Committee Chair Patrick McHenry, R-N.C, along with Subcommittee Chairs Bill Huizenga, R-Mich.; French Hill, R-Ark.; and Andy Barr, R-Ky., also sent letters to Gensler; Federal Reserve Chair Jerome Powell; Federal Deposit Insurance Corp. Chair Martin Gruenberg; and Acting Comptroller of the Currency Michael Hsu seeking more information on discussions between the agencies regarding SAB 121.

The letters specifically ask for “all non-public records and communications between the SEC, the Federal Reserve, OCC, and FDIC” on digital asset custody, an interagency statement on crypto assets’ risks to banking organizations and a related request for information. It also asks for each agency’s internal communications on the guidance, interagency statement and RFI, as well as those internal communications referring to the other agencies’ “regulatory treatment of digital asset custody” prior to the issuance of SAB 121.

The information is requested by no later than Oct. 7, according to the letters.