Congressman Mike Flood Aims to Overturn SAB 121 and End Gensler’s Crypto Era
Blog post description.
The debate over cryptocurrency regulation is heating up as Congressman Mike Flood renews his commitment to overturn the SEC’s SAB 121 rule, which has been a roadblock for banks offering crypto custody services. After leading a bipartisan vote in the House to repeal the rule, Flood is now focused on working with a new SEC Chair to eliminate SAB 121 once and for all, marking the end of what he calls the "Gensler era."
The Struggle Over SAB 121
Earlier this year, both the House and Senate voted to repeal the SEC’s controversial accounting guideline, which forces banks to list custodial digital assets on their balance sheets. This approach, championed by current SEC Chair Gary Gensler, has faced significant opposition from the financial sector. Critics argue that it creates a heavy compliance burden, making it prohibitively expensive for banks to offer crypto custody and stifling innovation in the tokenization space.
Despite bipartisan support, with 71 Democrats joining House Republicans to back the repeal, President Biden vetoed the effort, keeping SAB 121 in place. This outcome has left many in the industry frustrated, as the rule continues to limit banks' ability to fully engage in the crypto market.
Costly Compliance and Innovation Barriers
By treating custodial digital assets as part of banks' balance sheets, SAB 121 introduces complex financial reporting requirements. According to industry experts, this significantly raises the cost of compliance and discourages banks from developing crypto custody solutions. As a result, the rule has become a barrier to broader financial innovation, especially in the area of tokenization — the process of turning real-world assets into blockchain-based tokens.
To address some of these concerns, the SEC has granted exceptions for specific cases. However, these are seen as a temporary fix rather than a long-term solution, as they require constant negotiations between banks and the SEC for crypto-related transactions.
Flood’s Strategy to Change Course
Despite these setbacks, Congressman Flood remains determined to roll back SAB 121. "SAB 121, despite widespread opposition, has been implemented as if it were a full regulation, without following the standard procedures of the Administrative Procedures Act," Flood recently wrote.
Flood’s criticism extends to SEC Chair Gary Gensler, who has been a vocal opponent of more permissive digital asset regulations. Flood’s stance is clear: "Whether Gensler steps down on his own or faces President Trump’s famous 'You’re fired' on January 20, 2025, the new administration will have a chance to turn the page on the Gensler era."
A Breakthrough for Crypto Regulation
Earlier this year, the House passed a digital assets framework with bipartisan backing, setting clearer guidelines for the cryptocurrency industry. The bill's support included a surprising 71 Democrats aligning with Republicans, highlighting a growing consensus on the need for regulatory clarity in the crypto space. Although the bill remains stalled in the Senate, its passage in the House is seen as a major step forward for crypto regulation.
Flood believes this momentum will continue as a unified Republican government takes charge in January. "The bipartisan support we saw in the House is a sign of a shifting perspective on digital assets," Flood noted, emphasizing that the framework could guide future policy discussions in Congress.
What’s Next for Crypto Regulation?
As the new Congress convenes in January, the focus will be on whether political and regulatory bodies can deliver on the promises of reform. Advocates like Congressman Flood see an opportunity to create a more favorable environment for digital assets, pushing back against rules like SAB 121 that restrict financial innovation.
The next SEC Chair, coupled with potential changes in the White House, could usher in a new era for cryptocurrency in the U.S., moving beyond Gensler’s legacy. As debates continue, the future of crypto regulation is at a critical crossroads, with key decisions that could reshape the financial landscape and the role of digital assets in the mainstream economy.