McHenry, Huizenga, Hill, Barr Demand Fed, FDIC, OCC, SEC Provide Interagency Communications Regarding SAB 121

McHenry, Huizenga, Hill, Barr Demand Fed, FDIC, OCC, SEC Provide Interagency Communications Regarding SAB 121

Washington, September 24, 2024 -

Ahead of a hearing with the full Securities and Exchange Commission (SEC), the Chairman of the House Financial Services Committee, Patrick McHenry (NC-10), Chairman of the Oversight and Investigations Subcommittee, Bill Huizenga (MI-04), Chairman of the Digital Assets, Financial Technology and Inclusion Subcommittee, French Hill (AR-02), and Chairman of the Financial Institutions and Monetary Policy Subcommittee, Andy Barr (KY-06), sent letters demanding regulators provide interagency communications regarding the SEC's Staff Accounting Bulletin (SAB) 121.

SAB 121 upends bank custody rules for digital assets, weakens consumer protections, and stifles financial innovation. The lawmakers are seeking insight into discussions between the agencies regarding SAB 121 to assess whether the SEC undermined banking regulators with this siloed regulatory action, which would risk introducing unnecessary uncertainty and instability into our financial system.

The letter recipients include the Federal Reserve Board (Fed) Chairman Jerome Powell, Federal Deposit Insurance Corporation(FDIC) Chair Martin Gruenberg, Acting Comptroller of the CurrencyMichael Hsu, and Securities and Exchange CommissionChair Gary Gensler.

Read the lawmakers' letter to Fed Chair Powell here.

Read the lawmakers' letter to FDIC Chair Gruenberg here.

Read the lawmakers' letter to Acting Comptroller Hsu here.

Read the lawmakers' letter to SEC Chair Gensler hereor below:

"We write to you as part of our ongoing efforts to examine and understand the Securities and Exchange Commission's (SEC) engagement with the prudential regulators as it relates to financial institutions' ability to safeguard digital assets. Specifically, Staff Accounting Bulletin (SAB) 121 imposes burdensome and impractical requirements on regulated financial institutions seeking to offer digital asset custodial services to their customers. While Congress's concerns about SAB 121 have been well-documented, our concerns surrounding the lack of interagency communication leading up to SAB 121's publication continues to increase after examining communications provided to the House Committee on Financial Services (the Committee) by the prudential regulators.

"In response to our requests, the Board of Governors of the Federal Reserve (Federal Reserve), Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC) produced documents to the Committee containing communications between and among the prudential regulators. Based on these documents, it is apparent that three federal prudential regulators dedicated considerable time and resources to creating both an Interagency Statement on Crypto-Asset Custody Services and a related request for information (RFI) regarding crypto-asset custody ancillary activities during the months leading up to SAB 121's publication. However, SAB 121's publication may have disrupted this interagency initiative. Additionally, it appears that the federal prudential regulators were not privy to the SEC's initial decision to issue SAB 121.

"Shortly after SAB 121's publication, emails between agencies' employees suggest that the document contained 'various ambiguities' and left open questions regarding its scope. It is unclear if any communications occurred between the SEC and any of the prudential regulators to discuss the regulatory treatment of digital asset custodial services prior to SAB 121's publication. It also remains unclear what impact SAB 121's publication had on the interagency workstream, which was intended to include both an Interagency Statement as well as an RFI. Ultimately, neither document was published despite the considerable time and resources dedicated to the initiative.

"It is imperative to ensure that no agency undermines another through rushed actions, which risks introducing uncertainty and instability into our financial system. Following these discoveries, we seek to better understand the internal communications at the SEC and between the SEC and the Federal Reserve, OCC, and FDIC. This will assist the Committee as it works to evaluate the SEC's justification for publishing SAB 121 despite the ongoing interagency initiatives amongst the federal prudential regulators."

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