A group of Republican lawmakers led by Representative Patrick McHenry and Senator Cynthia Lummis have raised concerns about the Securities and Exchange Commission’s (SEC) approach to regulating cryptocurrency custody.

- In a letter to SEC Chairman Gary Gensler, the lawmakers demanded that Accounting Bulletin No. 121 (SAB 121) be repealed.

- The lawmakers argue that the SEC issued guidance without consulting key regulators or following a formal rulemaking process.

- SAB 121 requires digital asset custodians to recognize liabilities and hold the assets on their balance sheets at the market value of the cryptocurrency.

- This could create risks for consumers by inaccurately reflecting custodians’ liabilities.

- The lawmakers also pointed to the SEC’s confidential consultations with individual financial institutions, where exemptions from the reporting requirements were granted.

- One such institution was BNY Mellon, which received an exemption from some of the requirements of SAB 121.

Republicans believe that this approach by the SEC undermines investor protection and requires more transparency.