SAB 121 Affair: Senators Urge Regulatory Cognizance
The US Securities and Exchange Commission’s (SEC) SAB 121 ruling has come under intense scrutiny from US Congress representatives. A significant number of senators have expressed their opposition to the rule in a formal memo addressed to key financial authorities.
In their letter, the senators emphasize that SAB 121 is a directive that requires financial institutions providing crypto custodial services to maintain a specific amount of funds backing their clients’ digital assets. The ruling has evoked concerns regarding its legality and the lack of Congressional review and approval.
The legislative members are of the view that the SAB 121 rule should not have any legal effect on the financial institutions in question. They argue that these entities are not obligated to acknowledge liability and corresponding asset offsets on their balance sheets as mandated by the directive.
The primary point of contention is that the SAB 121 ruling was not presented to Congress or the Government Accountability Office (GAO) for review, even though it meets the criteria of being a rule under the Administrative Procedure Act (APA). The ruling was also not published in the Congressional Record, as required by the Congressional Review Act (CRA).
The senators fear that if the SAB 121 rule is allowed to stand, it could set a problematic precedent, enabling regulatory overreach and granting government agencies unwarranted authority over financial institutions.
The members of Congress request the FDIC Chairperson and other financial authorities to provide clarifications and guidance to support the position that the SAB 121 ruling should not be enforceable.
Senator Cynthia Lummis is a prominent figure in the ongoing battle against the SAB 121 ruling. Other senators, including Kirsten Gillibrand, as well as Representatives Patrick McHenry and French Hill, have also expressed their concerns regarding the legality of the directive.
The SEC’s increased regulatory efforts in the crypto space under the leadership of Gary Gensler have further amplified the tensions. Gensler’s stance on crypto assets and his legal actions against cryptocurrency trading firms have created a climate of uncertainty, prompting firms like Coinbase to consider expanding their operations globally.
As the debate over SAB 121 unfolds, the evolution of the regulatory landscape in the crypto industry continues to have ripple effects on global expansion and operations in the sector.
