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In a significant win for the crypto community, United States Senator Cynthia Lummis has secured a key victory with a decision by the Government Accountability Office (GAO), issued on October 31. The GAO’s determination was that the Securities and Exchange Commission’s (SEC) Staff Accounting Bulletin 121 should be subject to congressional review. This bulletin, released in March 2022, has been a source of contention for numerous pro-crypto lawmakers.
The GAO’s involvement came as a result of a letter sent by Senator Lummis to the U.S. Comptroller General in August 2022. The primary question at hand was whether the bulletin qualified as a rule subject to the Congressional Review Act (CRA). Under the CRA, an agency rule necessitates submission of a report to the comptroller general and both houses of Congress, with a process allowing Congress to disapprove the rule. Using the definition of a rule as outlined in the Administrative Procedures Act (APA), the GAO determined that the SEC bulletin falls under the purview of the CRA. The GAO explained:
“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 a rule under APA.”
The bulletin serves as a document expressing the staff’s perspective on accounting for obligations related to safeguarding crypto-assets held by entities for platform users, according to the SEC. The SEC clarifies that “the statements in staff accounting bulletins are not rules or interpretations of the Commission, nor are they published as bearing the Commission’s official approval. They represent staff interpretations and practices.”
The bulletin utilized hypothetical scenarios to outline what the SEC considered to be best practices for safeguarding crypto-assets held by platforms for their users. Platforms such as Coinbase and PayPal were notable examples. It advised these platforms to list users’ assets on their books as both liabilities and assets at their fair value upon initial recognition. This marked a significant shift in accounting practices as custodied assets had not been previously recorded on balance sheets.
The bulletin swiftly garnered opposition from various quarters. SEC Commissioner Hester Peirce issued a critical response within days, contending that the accounting procedure described in the bulletin was, in part, a reaction to risks for which the SEC itself was partially responsible.
In June 2022, five Republican senators, including Senator Lummis, wrote to SEC Chairman Gary Gensler to express their disapproval of what they termed the “backdoor regulation” of the bulletin. Furthermore, in September, Representative Mike Flood chastised Gensler regarding the bulletin during Gensler’s appearance before the House Financial Services Committee.
It’s essential to note that GAO findings are essentially recommendations. Nevertheless, as the agency points out, “Clearly, agencies are taking our recommendations seriously.”
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