United States Senator Cynthia Lummis has achieved another win for the cryptocurrency industry. On October 31, the Government Accountability Office (GAO) made a decision stating that the Securities and Exchange Commission (SEC) Staff Accounting Bulletin 121 should be subject to congressional review. This bulletin, which was issued in March 2022, has been a source of concern for many lawmakers who support crypto.
Senator Lummis had sent a letter to the U.S. Comptroller General in August 2022, urging the GAO to consider whether the bulletin should be subject to the Congressional Review Act (CRA). The CRA requires a report on an agency rule to be submitted to the comptroller general and both chambers of Congress, providing a procedure for Congress to disapprove the rule. By using the definition of a rule found in the Administrative Procedures Act (APA), the GAO determined that the SEC bulletin should indeed be subject to the CRA. The GAO stated:
“It is reasonable to believe that companies may change their behavior to comply with the staff interpretations found in the Bulletin […] The Bulletin is also of future effect and was designed to interpret and prescribe policy. Accordingly, we conclude that the Bulletin meets the definition of rule under APA.”
According to the SEC, the bulletin “expresses the views of the staff regarding the accounting for obligations to safeguard crypto-assets an entity holds for platform users.” They clarify that the statements in staff accounting bulletins are not official rules or interpretations of the Commission, but rather represent staff interpretations and practices.
The bulletin provided guidance on how platforms should account for crypto-assets held on behalf of their users. It recommended platforms to list these assets on their books as liabilities and assets at their fair value at initial recognition. This marked a significant shift in accounting practice as custodied assets were not previously recorded on balance sheets.
The bulletin faced objections from various sides. SEC commissioner Hester Peirce released a critical response within days, stating that the accounting procedure described in the bulletin was a response to risks that the SEC itself had contributed to. In June 2022, five Republican senators, including Lummis, wrote to SEC chairman Gary Gensler expressing their disapproval of the bulletin’s “backdoor regulation.” Gensler faced further criticism regarding the bulletin when he appeared before the House Financial Services Committee in September.
While the GAO findings are only recommendations, they hold significant weight. Agencies often implement these recommendations. This decision is seen as a clear statement from a federal agency that the SEC violated the law.
The cryptocurrency industry and its supporters see this GAO decision as a step forward in addressing concerns and ensuring fair regulations are in place.
– [Government Accountability Office decision](https://www.gao.gov/assets/870/862501.pdf)
– [SEC description of the Staff Accounting Bulletin 121](https://www.sec.gov/oca/staff-accounting-bulletin-121)
– [Tweet from Jake Chervinsky](https://twitter.com/jchervinsky/status/1719408896006123820?ref_src=twsrc%5Etfw)
– [Article on objections to the bulletin](https://cointelegraph.com/news/senators-join-chorus-of-disapproval-of-backdoor-regulation-in-sec-staff-accounting-bulletin)
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