The Concern about SEC Staff Accounting Bulletin 121

A recent memorandum submitted by U.S. Congress members has sparked debate over the enforceability of the Securities and Exchange Commission (SEC) Staff Accounting Bulletin 121 (SAB 121). The controversy has caught the attention of key financial committees, raising questions about the implications of this directive.

Questioning the Enforceability of SAB 121

The memorandum, which can be viewed here, challenges the validity of SAB 121 in light of a decision by the Government Accountability Office (GAO) characterizing it as a rule under the Congressional Review Act. This has prompted concerns about the potential impact of SAB 121 on the financial industry and the regulatory environment.

Content and Origin of SAB 121

SAB 121, introduced in April 2022 without consultation with major financial regulatory bodies, requires custodians to report customer custodial digital assets on their balance sheets, evaluated at fair value. However, this directive deviates from standard accounting practices and has raised concerns about misrepresentation of custodians’ legal and economic responsibilities, as well as potential risks for consumers.

The GAO’s Perspective and Congressional Concerns

A key development in this controversy came in October 2023, when the GAO asserted that companies might adjust their behaviors to align with the SEC’s interpretations in the Bulletin. Notably, the SEC did not submit SAB 121 to Congress or the GAO, nor did it publish it in the Congressional Record, as mandated by the Congressional Review Act. This has led to concerns that enforcing this noncompliant rule would set a dangerous precedent and grant the SEC undue regulatory control over unauthorized entities.

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The Debate Over SAB 121’s Impact

One of the main points of contention surrounding SAB 121 is its mandate for banks to record client cryptocurrency holdings on their balance sheets, with appropriate valuation and capitalization. Industry representatives and U.S. politicians have criticized this, arguing that it could discourage regulated banks from serving as crypto custodians and unfairly treat crypto holdings differently from traditional assets.

The Investigation and the Need for Clarity

The inquiry into SAB 121’s status as a rule originated from Senator Cynthia Lummis’s letter to the U.S. Comptroller General in August 2022. This action underscores the importance of established legislative procedures and the need for clarity in digital asset regulation.


The memorandum serves as a significant moment in the oversight of digital asset regulation, highlighting the necessity for clear guidance and adherence to legislative procedures. This ongoing debate is likely to have implications for the future regulation of digital assets and financial institutions.

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By Team