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Lawmakers Criticize SEC's SAB 121 and CAT for Custody, Concentration and Privacy Risks
Summary
Members accused the SEC's staff accounting guidance (SAB 121) of concentrating digital-asset custody and creating cybersecurity exposure via the Consolidated Audit Trail (CAT); commissioners said they would review concerns and consider reproposals or further guidance.
Several representatives used the hearing to focus on two technical but consequential issues: Staff Accounting Bulletin 121 and the Consolidated Audit Trail.
Multiple members said SAB 121, which clarifies accounting treatment for crypto in certain contexts, has narrowed the field of eligible custodians and increased concentration risk in custody services. "One of the reasons is because of our SAB 121, which makes it very hard for people to be custodians in this space," Commissioner Hester Peirce said when discussing custody market structure.
Members pressed Chair Gensler on whether SAB 121 should be rescinded or reworked through a public rulemaking process; several suggested the staff's case-by-case consultations with particular market participants (including no-objection letters) lack transparency. Gensler defended the bulletin as grounded in bankruptcy court outcomes and said the staff's consultations have a long history but acknowledged the committee's concerns about transparency.
Separately, legislators raised cybersecurity and privacy risks posed by the Consolidated Audit Trail, a centralized repository of trade and account data. Commissioners acknowledged the CAT contains sensitive retail-investor information, noted potential FOIA and exemption questions, and agreed that data concentration increases cyber vulnerability. Commissioner Hester Peirce called the CAT concerns 'only grown' since prior reviews and stressed the need for robust data-security amendments before finalization.
Lawmakers requested written follow-up on the processes used by the SEC's Office of the Chief Accountant on SAB 121 and asked for clarification on whether the CAT's PII could be accessed via FOIA or otherwise, and under what exemptions. The hearing did not produce a formal policy change; members said they will continue oversight.
