The U.S. Government Accountability Office (GAO) has delivered a significant decision favoring cryptocurrency proponents. Following an inquiry prompted by Senator Cynthia Lummis, the GAO clarified that the SEC’s Staff Accounting Bulletin 121 falls under congressional oversight.
The controversial SEC bulletin, released in March 2022, drew immediate criticism from the crypto community and pro-crypto lawmakers. Senator Lummis, a known crypto advocate, sought clarity on the matter. In August 2022, she wrote to the U.S. Comptroller General, requesting an assessment of the bulletin’s status.
The GAO, after a thorough examination, determined that the bulletin should indeed be subject to the Congressional Review Act (CRA). The CRA mandates that a report on any agency rule should go to both chambers of Congress and the Comptroller General. Furthermore, it allows Congress to disapprove the rule.
GAO’s Argument
The GAO based its findings on defining a rule in the Administrative Procedures Act (APA). The bulletin, they argued, influences company behavior, has a future effect, and aims to interpret and prescribe policy. Hence, it fits the APA’s definition of a rule. Therefore, it is subject to the CRA.
The SEC bulletin guided accounting for obligations related to safeguarding crypto-assets held for platform users. Although it represented staff interpretations and not official Commission views, its recommendations marked a significant shift in accounting practices. For instance, it advised platforms like Coinbase and PayPal to record users’ assets as liabilities and assets at their initial fair value. This guidance contradicted previous practices, where assets did not appear on balance sheets.
The bulletin did not go unchallenged. SEC commissioner Hester Peirce issued a critical response soon after its release. Moreover, five Republican senators, including Senator Lummis, expressed their disapproval in a letter to SEC chairman Gary Gensler. Representative Mike Flood also voiced concerns during a House Financial Services Committee meeting in September.
Though the GAO’s findings are merely recommendations, they are a significant step forward. They underscore the importance of transparent and accountable regulatory practices, especially in the rapidly evolving crypto space. Agencies, including the SEC, should take note and align their practices accordingly for a balanced and fair regulatory environment.
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