US Senator Cynthia Lummis scored another score for cryptocurrencies with a Government Accountability Office (GAO) decision issued on October 31. The GAO found that Securities and Exchange Commission (SEC) Staff Accounting Bulletin 121 should be subject to congressional review. That bulletin, published in March 2022, has been a source of ire for many pro-cryptocurrency lawmakers.
The GAO acted on a letter sent by Lummis to the US Comptroller General in August 2022. considered whether the bulletin was a rule subject to the Congressional Review Act (CRA). Under the CRA, a report on an agency rule must be submitted to the Comptroller General and both houses of Congress, with a procedure for Congress to disapprove the rule. Using the definition of a rule found in the Administrative Procedures Act (APA), the GAO found that the SEC bulletin was subject to the CRA. The GAO said:
โIt is reasonable to believe that companies can change their behavior to comply with the personnel interpretations found in the Bulletin [โฆ] The Bulletin also has future effect and was designed to interpret and prescribe policy. Accordingly, we conclude that the Bulletin meets the APA definition of rule.โ
The bulletin "expresses the opinions of staff regarding the accounting of obligations to safeguard crypto assets that an entity has for users of the platform," according to the SEC. He saying, โThe statements contained in personnel accounting bulletins are not rules or interpretations of the Commission, nor are they published with the official approval of the Commission. They represent interpretations and practices of the staff.โ
This is huge.
The GAO reviewed SAB 121, an illogical anti-cryptocurrency accounting bulletin issued by the SEC last March, and found that it is a "rule" under the CRA and APA.
The SEC also did not comply.
This is a clear statement from a federal agency that the SEC violated the law. https://t.co/brglK3sm8S
-Jake Chervinsky (@jchervinsky) October 31, 2023
The bulletin used hypothetical situations to describe what the SEC considered best practices for safeguarding crypto assets held by platforms for their users. Coinbase and PayPal are examples of this type of platforms. It advises platforms to include their users' assets on their books as liabilities and assets at fair value on initial recognition. This represented a sharp turn in accounting practice, since custody assets were not previously recorded on balance sheets.
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The bulletin quickly met with objections from various sides. Hester Peirce, SEC Commissioner launched a critical response Within days. Peirce asserted that the accounting procedure described in the bulletin was a response to risk of which the SEC itself was in part the source.
Five Republican senators, including Lummis, wrote to SEC Chairman Gary Gensler in June 2022 to express disapproval of the newsletter's โbackdoor regulation.โ Gensler received more lectures in the newsletter by Representative Mike Flood when he appeared before the House Financial Services Committee in September.
The GAO's findings are only recommendations. However, the agency grades"Clearly, agencies are following our recommendations."
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