GAO Rules Controversial SEC Crypto Bulletin Requires Congressional Review
Summary:
The U.S. Government Accountability Office (GAO) has ruled that a controversial SEC bulletin on cryptocurrency should be reviewed by Congress. The decision follows a request by Senator Cynthia Lummis, a pro-cryptocurrency advocate. The bulletin, which presented new accounting practices for platforms holding crypto-assets for users, was criticized by several parties, including SEC Commissioner Hester Peirce and five Republican senators. The GAO's findings are advisory, but typically influence agencies' actions.
The U.S. Government Accountability Office (GAO) has handed a victory to cryptocurrency advocates, led by Senator Cynthia Lummis, in their criticism of a Securities and Exchange Commission (SEC) bulletin. The GAO ruled on October 31 that SEC Staff Accounting Bulletin 121, a contentious document among crypto supporters issued in March 2022, should be subject to a review by Congress. Lummis had penned a letter to the U.S. Comptroller General in August 2022 requesting this review.
The GAO was tasked with determining if the bulletin was a "rule", thus coming under purview of the Congressional Review Act (CRA). This act necessitates that any agency’s rule must be reported to the comptroller general and the Congress, with an opportunity for Congress to object. Utilizing the definition of a "rule" from the Administrative Procedures Act (APA), the GAO determined the SEC bulletin was liable to the CRA. The GAO stated that the bulletin was potentially influential enough to make businesses modify their behaviors in line with its content, hence interpreting it as a rule under APA.
The SEC describes the bulletin as a statement of views from staff on accounting for obligations to protect crypto assets held by an entity for users of the platform. It highlighted that bulletins are not the official view of the Commission, rather they constitute staff interpretations. The GAO's stance implies that the SEC overstepped their boundaries by issuing an anti-crypto bulletin, SAB 121, without adhering to CRA and APA guidelines.
The bulletin used theoretical situations to demonstrate best practices in protecting crypto-assets held by platforms for users, such as Coinbase and PayPal. Its advice led to a stark pivot in accounting practice, suggesting platforms should record users' assets as liabilities and assets at inception based on fair value. This had not been previous practice for custodied assets.
Various parties voiced their opposition to the bulletin swiftly. SEC Commissioner Hester Peirce published a strongly worded response, while five Republican senators, including Lummis, penned a letter to SEC chairman Gary Gensler expressing their dissatisfaction, labeling it "backdoor regulation." Moreover, Representative Mike Flood critiqued Gensler on the matter in front of the House Financial Services Committee. Although GAO findings are only advisory, the agency noted that agencies are generally responsive to their recommendations.
Published At
10/31/2023 9:29:56 PM
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