House Financial Services Committee Chair Patrick McHenry (R-NC) and Sen. Cynthia Lummis (R-WY), two of the biggest advocates of cryptocurrencies among lawmakers, are opposing an April bulletin issued by the Securities and Exchange Commission intended to control how regulated financial institutions account for crypto, according to a recent letter sent to a number of banking agencies. The lawmakers pushed back against the SEC's so-called Staff Accounting Bulletin 121 (SAB 121), arguing the effect of such a measure "is to deny millions of Americans access to safe and secure custodial arrangements for digital assets." SAB 121 would require financial firms to place digital assets on their balance sheets in what would ultimately "trigger a massive capital charge," McHenry and Lummis wrote. For financial firms, off-balance sheet treatment of custodial assets has typically been the norm as history shows. “A recent decision in the Celsius ( CEL-USD ) bankruptcy, which classified all Celsius’ customers as unsecured creditors, and therefore at the back of the line to recover their assets, highlights the legal risk of effectively forcing customer custodial assets to be placed on balance sheet,” they emphasized. The lawmakers concluded the letter by asking the Federal Reserve and other banking agencies about whether SAB 121 conflicts with their own policies, and whether they've directed financial firms to comply with the bulletin. Amid a long string of high-profile failures in the crypto space in a short span, the SEC has been increasingly cracking down on the industry. Last month, the securities regulator proposed to make it harder for crypto firms to be qualified custodians.
