The upcoming House Appropriation budget poses a significant challenge to the US Securities and Exchange Commission (SEC) in implementing its controversial Staff Accounting Bulletin 121 (SAB 121). The budget bill aims to prohibit the use of appropriated funds by the SEC to enforce the rule, creating a roadblock for the regulatory body.
Political Dynamics in the House and Senate
The political landscape adds complexity to the situation, with the House currently having a Republican majority and likely to pass the appropriation bill in a hearing scheduled for June 5. However, the Senate, with a Democratic and Independent majority, will need to negotiate its own appropriation bill, leading to potential conflicts regarding the fate of SAB 121.
Response from SEC Commissioners
SEC commissioner Mark Uyeda’s support for withdrawing SAB 121 reflects a broader sentiment within the SEC regarding the rule. He criticized the introduction of SAB 121 through a regulatory edict, bypassing the regular rulemaking procedures under the Administrative Procedure Act (APA). This move was seen as undermining the system of checks and balances against an overreaching administrative state.
Criticism of Procedural Shortcomings
Uyeda’s concerns align with earlier criticisms from fellow SEC commissioner Hester Peirce, who questioned the use of a bulletin as the appropriate mechanism for implementing significant regulatory changes. Both Uyeda and Peirce focused on the procedural shortcomings in introducing SAB 121, rather than questioning the content of the rule itself. Peirce even acknowledged that the decision might be appropriate, emphasizing the need for a more robust rulemaking process.
SAB 121 places significant obligations on financial institutions and other firms responsible for safeguarding customers’ digital assets. The requirement to record these digital assets on balance sheets can lead to increased capital and liquidity costs for these companies, impacting their overall financial health. The financial sector has expressed concerns about the potential burden imposed by SAB 121, leading to a pushback against its implementation.
Both the House and Senate previously voted in favor of passing H.J. Res. 109 to overturn SAB 121, highlighting the bipartisan concern over the rule’s implications. Despite strong support from lawmakers and industry groups, President Joe Biden vetoed the resolution on May 31, citing risks to consumers and investors. This move received significant backlash, with calls for Biden to reconsider his decision and support the repeal of SAB 121.
The upcoming House Appropriation budget and the challenges it poses to the implementation of SAB 121 reflect broader debates within the regulatory landscape. The criticisms from SEC commissioners, the concerns raised by the financial industry, and the political dynamics between the House and Senate all contribute to the uncertainty surrounding the fate of SAB 121. The resolution of this issue will have significant implications for the regulatory framework governing digital assets and the financial sector as a whole.
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