Imagine this: a bunch of lawmakers are up in arms, accusing the SEC of playing favorites with certain banks when it comes to crypto custody. It sounds like a plot twist in a financial drama, but it's happening in real life!
Leading the charge are Republican heavyweights Rep. Patrick McHenry and Sen. Cynthia Lummis. They've penned a fiery letter to SEC Chair Gary Gensler, demanding the agency ditch its controversial Staff Accounting Bulletin No. 121 (SAB 121).
So, what's the fuss all about? The lawmakers claim that SAB 121 was rolled out without any heads-up to key regulators and without following the usual rulemaking process. They argue this move is causing chaos and potentially putting consumers at risk.
Here's the kicker: SAB 121 forces digital asset custodians to list a liability and an offset on their balance sheets, priced at the fair market value of their crypto. This is a big switch-up from traditional accounting norms and could end up giving a skewed picture of a custodian's obligations.
The lawmakers are saying, “Hey, SEC, you've got the power to pull this back. There's no reason not to.”
Adding more fuel to the fire, they pointed to a Government Accountability Office (GAO) ruling that labeled SAB 121 as a “rule,” meaning it should've gone through the formal notice and comment process. But instead, the SEC bypassed this by calling it staff guidance.
The plot thickens with allegations of the SEC holding secret chats with select banks, dishing out exemptions on a case-by-case basis. Fox reporter Eleanor Terrett even called out the SEC commissioners, accusing them of letting accounting staff “pick winners and losers” in the crypto custody world.
One major player in this saga is BNY Mellon. They got the green light to dodge some of SAB 121's tough requirements, as revealed by Chris Land, general counsel to Sen. Lummis, during a public hearing in Wyoming. BNY Mellon has been navigating the tricky waters of crypto deposits since 2022, but SAB 121's rules have been a major headache.
“BNY is eager to dive deeper into the crypto custody game,” Land spilled. “They hit some walls with SAB 121, but the SEC seems to have thrown them a lifeline.”
The lawmakers aren't thrilled about this selective treatment, arguing it kills any transparency and leaves investors in the dark about whether SAB 121 is being applied consistently.
In the end, they're warning that the SEC's current approach could undermine investor protections, as uneven rule enforcement hampers “enhanced” disclosures. It's a classic case of regulatory drama with high stakes in the ever-evolving crypto world!
