On October 31, the United States Government Accountability Office (GAO) issued a decision in favor of Senator Cynthia Lummis, finding that the U.S. Securities and Exchange Commission (SEC) Staff Accounting Bulletin 121 should be subject to congressional review. The bulletin, which was released in March 2022, has been controversial among pro-crypto lawmakers.
The GAO was responding to a letter sent by Senator Lummis to the U.S. Comptroller General in August 2022, asking whether the bulletin was a rule that should be reviewed by Congress under the Congressional Review Act (CRA). The CRA requires that a report on any agency rule be submitted to both chambers of Congress and the comptroller general, and provides a process for Congress to disapprove of the rule.
The GAO found that the SEC bulletin met the definition of a rule under the Administrative Procedures Act (APA), concluding that “It is reasonable to believe that companies may change their behavior to comply with the staff interpretations found in the Bulletin” and that “The Bulletin is also of future effect and was designed to interpret and prescribe policy.”
The bulletin provides guidance on how companies should account for obligations to safeguard crypto-assets held for platform users. It advises platforms to list users’ assets on their books as both liabilities and assets at their fair value when initially recognized. This marked a significant change from previous accounting practices, which did not require custodied assets to be recorded on balance sheets.
The bulletin was met with objections from multiple sides. SEC commissioner Hester Peirce released a critical response within days of the bulletin’s release, and five Republican senators, including Lummis, wrote to SEC chair Gary Gensler in June 2022 to express their disapproval. Gensler was also questioned about the bulletin by Representative Mike Flood during a September hearing before the House Financial Services Committee.
While the GAO’s findings are only recommendations, the agency noted that “Clearly, agencies are taking our recommendations.”
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