House Panel Advances Challenge to SEC Crypto Custody Accounting

The U.S. House Financial Services Committee ordered H.J.Res. 109 reported to the House on February 29, 2024, advancing an attempt to overturn the Securities and Exchange Commission staff’s accounting guidance for companies safeguarding customers’ crypto assets.

The committee’s later official report recorded 31 votes in favor and 19 against. The action was consequential but preliminary: it moved the Congressional Review Act resolution beyond committee without repealing Staff Accounting Bulletin No. 121, changing any custodian’s reporting treatment or establishing that the resolution would become law.

What the resolution targeted

SEC staff issued SAB 121 on March 31, 2022, and the bulletin became effective on April 11, 2022. It addressed specified SEC-reporting entities that had obligations to safeguard crypto assets held for platform users, including arrangements in which the entity or its agent maintained the cryptographic keys required to access those assets.

The bulletin said a covered entity should recognize a liability on its balance sheet reflecting its safeguarding obligation. That liability was to be measured initially and at each reporting date at the fair value of the crypto assets the entity was responsible for holding. Staff also said the entity should recognize a corresponding asset measured on the same initial basis, with later measurement accounting for potential loss events.

Expected disclosures included the nature and amount of safeguarded crypto assets, significant concentrations, responsibility for key management and vulnerabilities involving theft, loss, fraud or bankruptcy. The SEC described the guidance as a staff interpretation rather than a Commission rule or interpretation carrying the Commission’s official approval.

Why custody accounting became a policy fight

Supporters of H.J.Res. 109 argued that SAB 121’s balance-sheet treatment interacted with bank capital, liquidity and other prudential requirements in ways that discouraged regulated banks from offering digital-asset custody at scale. The committee’s February 29 announcement presented the resolution as removing a roadblock to bank custody and improving consumers’ access to regulated custodians.

Those were policy arguments, not measurements of a uniform effect across every institution. SAB 121 did not expressly prohibit banks from holding crypto assets for customers, and the committee vote did not quantify its cost for any named bank. Whether a firm could provide custody depended on its regulatory status, balance sheet, supervisors, operating model and other legal requirements.

The SEC’s stated rationale ran in the other direction. Its staff identified technological, legal and regulatory uncertainties that it considered distinctive to crypto-asset safeguarding, including control of cryptographic keys and unresolved treatment in fraud, theft or bankruptcy. Staff said recognizing the safeguarding obligation and providing detailed disclosures would give financial-statement users more information about those risks.

Congress invoked its review authority

The February 29 vote followed an October 31, 2023 Government Accountability Office decision concluding that SAB 121 qualified as a rule for Congressional Review Act purposes. GAO said the bulletin met the statutory definition incorporated from the Administrative Procedure Act and that no exclusion applied. It also found that the SEC had not submitted the required report to Congress or the comptroller general.

GAO’s decision supplied a procedural foundation for congressional review; it did not itself invalidate the bulletin. H.J.Res. 109 still had to pass the House and Senate and complete the presidential process before it could have legal effect.

The February 29 limit

At the close of February 29, the verified development was therefore an institutional escalation, not a completed policy reversal. A House committee had sent a direct challenge to SEC crypto-accounting guidance toward the full chamber, and the official tally showed support beyond a narrow one-vote margin.

SAB 121 nevertheless remained operative. No House floor vote, Senate decision, presidential action or later agency revision could be assumed from the committee result. Those possible developments belonged to later records; the February 29 event established only that the custody-accounting dispute had advanced from criticism to formal congressional action.